ACCA Advanced Taxation (ATX) Practice Exam

Which two types of trusts are examinable at the Advanced Taxation (ATX) level?

1. Discretionary trust (DT) and accumulated trust

2. Interest in possession trust (IIP) and discretionary trust (DT)

3. Fixed trust and interest in possession trust

4. Charitable trust and discretionary trust

The correct answer is: Interest in possession trust (IIP) and discretionary trust (DT)

The correct answer focuses on the types of trusts that are specifically relevant for taxation purposes within the context of the ACCA Advanced Taxation (ATX) syllabus. An interest in possession trust and a discretionary trust are two key types of trusts commonly examined due to their distinctive tax implications. An interest in possession trust grants a beneficiary the right to income generated by the trust as it arises. This means that the beneficiary receives the income and is liable for tax on it, while the capital remains in the trust for distribution at a later stage. The tax treatment for income received by the beneficiary is significant, as it can affect their overall tax liability. In contrast, a discretionary trust allows the trustee to decide how income and capital are distributed among the beneficiaries. This flexibility can have advantageous tax implications for both the trust and the beneficiaries, depending on their individual tax circumstances. The way income is taxed in a discretionary trust is vital; the trustee may pay tax on the income before any distribution, or income may be taxed in the hands of the beneficiaries when distributed, influencing the planning decisions around the trust. Choosing these two types reflects not only their relevance in practical scenarios but also the complexity involved in the resultant tax considerations that candidates need to understand when dealing with trust taxation in the