How Trust Income Is Taxed in South Africa

Trust income is taxed in one of three places, depending on what happens to it. Income that vests in or is paid to a resident beneficiary in the same year of assessment is taxed in that beneficiary's hands and keeps its character (interest stays interest, a capital gain stays a capital gain). Income the trust keeps is taxed in the trust at a flat 45%. And where the income comes from a donation or settlement by a resident donor, section 7 can push it back onto the donor instead.

For a trust beneficiary or a person who has put assets into a trust, that ordering is the whole picture. This article stays on your side of it: who actually pays, on what character of income, at what rate. All figures below are for the 2026 year of assessment (1 March 2025 to 28 February 2026).

The three outcomes

Vested in a resident beneficiary (the conduit principle, section 25B). If income vests in, or is distributed to, a resident beneficiary in the same year it arises, the trust is treated as a conduit. The income flows through and is taxed in the beneficiary's hands, at that beneficiary's own marginal rate and with the beneficiary's own exemptions. Its character is preserved: interest earned by the trust is interest in your hands, a capital gain is a capital gain, a foreign dividend is a foreign dividend. This is usually the most tax-efficient result, because a natural person has a tax threshold, rebates, the interest exemption and a lower capital gains inclusion rate, none of which the trust has.

Retained in the trust. Income the trust does not vest is taxed in the trust itself. A trust other than a special trust pays a flat 45% on its taxable income, with no rebates and no thresholds. There is no interest exemption at trust level. For capital gains, a normal trust includes 80% of the net gain in taxable income, so its maximum effective CGT rate is 45% x 80% = 36%.

Attributed to a resident donor (section 7). Where the income arises from a donation, settlement or other disposition by a resident donor, section 7 can tax it in the donor's hands rather than the trust's or the beneficiary's. (For a retained capital gain, the same attribution to a resident donor runs through paragraphs 68 to 72 of the Eighth Schedule rather than section 7 itself.) Attribution overrides the default that retained income is taxed in the trust. This is the anti-avoidance backstop: you cannot simply donate an income-producing asset into a trust to move the income off your own return.

Special trusts are the exception

A special trust is not taxed at the flat 45%. A special trust is one created solely for a person with a disability, or a testamentary trust set up for the minor children of the deceased. It is taxed on the individual sliding scale and uses the 40% capital gains inclusion rate, like a natural person, but it gets no rebates. Everything below deals with an ordinary discretionary trust, not a special trust.

Worked example: R150,000 of local interest

A discretionary trust earns R150,000 of South African interest. Compare vesting it against retaining it.

(a) Vested in an adult resident beneficiary (under 65). The interest keeps its character in the beneficiary's hands, so the under-65 local interest exemption of R23,800 applies:

• R150,000 - R23,800 = R126,200

That R126,200 is added to the beneficiary's taxable income and taxed at their marginal rate. The first R23,800 is not taxed at all.

(b) Retained in the trust. The trust has no interest exemption and pays the flat rate:

• R150,000 x 45% = R67,500

So retaining the same R150,000 of interest costs R67,500 in the trust, while vesting it exposes only R126,200 to tax and does so at the beneficiary's own (often lower) marginal rate.

The same contrast for a capital gain

Character and inclusion rate matter just as much for gains. Take a R200,000 capital gain.

Retained in a normal trust (80% inclusion):

• R200,000 x 80% = R160,000 included in taxable income
• R160,000 x 45% = R72,000 tax (an effective rate of 36% on the gain)

The same R200,000 gain taxed in an individual's hands (40% inclusion, R40,000 annual exclusion):

• R200,000 - R40,000 = R160,000
• R160,000 x 40% = R64,000 included in taxable income
• that R64,000 is then taxed at the individual's marginal rate

The individual gets an annual exclusion the trust never has, and includes 40% rather than 80%. If the gain vests in a resident beneficiary in the same year, it is the beneficiary's figures that apply, not the trust's.

What this means in practice

Vesting income in resident beneficiaries in the year it arises is what turns the higher trust rates into the beneficiaries' own lower rates and exemptions. Retained income is the expensive path, taxed at 45% with no rebates, no thresholds and no interest exemption. And where you funded the trust by donation, section 7 may mean the income was always going to be taxed on your return regardless of where it sat: it is the same attribution rule that taxes income donated to a minor child in the parent's hands. If the trust earns rental income, our guide to tax on rental income sets out which expenses are deductible and how the net profit is taxed at marginal rates, and for how the individual capital gains figures work on a property sale, see capital gains tax on your house. You can model a beneficiary's marginal position on the basic income tax calculator.