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The source of a beneficiary’s income

Where a beneficiary receives income from a discretionary trust, he receives it because he has become entitled to that income upon the exercise of the trustees’ discretion. Therefore, the source of the beneficiary’s income is the trust itself. This contrasts with the position of a beneficiary of an interest in possession trust who is treated as deriving his income from the trust property. See the Interest in possession beneficiaries (IT) guidance note.

The rule in Drummond applies to trusts where the beneficiary does not have title to the income as it arises, for example, where:

1. •

   he is a beneficiary of a discretionary trust

2. •

   the trustees have a power