If any money is given to your children as an income distribution it is subject to income tax on the person receiving the money unless the trustees have already paid the tax. However, this is not normally tax-effective. It is usually better for the person receiving the money to pay the tax especially if you have pointed the money to people who are not higher rate tax payers. For example grandchildren who are under 18 and may have a full unused personal tax allowance of£12500.

For a Flexible reversionary trust, it depends on who is taking out the money. If the money is reverting back to the original settlor, any growth on the investment will be subject to income tax, but the original capital will not be.

If the money is being passed to a beneficiary, it will also be subject to income tax, but the amount of money withdrawn is not limited to 14.28% of the original capital investment.

There are differences in the taxation of the two types of trust and experienced advice is essential.