Who is liable for paying tax in an absolute or bare trust arrangement?

In an absolute or bare trust arrangement, the beneficiary is liable for paying tax on any income generated by the trust assets. This is because, in such trusts, the beneficiary has an immediate and unfettered right to the capital and income from the trust. Given that the beneficiary is the one who ultimately benefits from the trust, they are responsible for any tax obligations that arise from income or gains received from the trust's assets.

In an absolute trust, the trustee typically holds the assets solely for the benefit of the beneficiary and cannot change the beneficiaries or exercise discretion regarding the distribution of income. Therefore, from a tax perspective, the beneficiary is treated as the beneficial owner of the trust's income, making them accountable for any tax liabilities.

This arrangement contrasts with other types of trusts, where the trustee or settlor may have different responsibilities for tax payments. Understanding this principle is important in grasping the tax implications related to different trust structures in financial planning.