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If trustees carry on a business, the profits are not ‘earned income�. This applies even where the trustees carry on the business through a beneficiary who is not a trustee.

If a beneficiary (or the beneficiary’s spouse) receives profits, they are not necessarily earned income. It depends on the involvement with the business. »Ê¹ÚÌåÓýapp profits are only earned income if the beneficiary and/or spouse actively conducts the business. It is not enough just to take a limited interest. It would not be enough to receive reports of progress, or appoint a manager.

A beneficiary may be an employee of the business. Any pay is earned income. Profits are not.

Tax cases

Fry v Shiels Trustees 6 TC 583

McDougal v Smith 7 TC 134