The following Trusts and Inheritance Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:
The income of discretionary trusts is taxable on the trustees. When income is passed on to beneficiaries, they are treated as receiving it net of tax at the trust rate. The beneficiary receives a credit for the trust rate tax. If his personal rate of tax is lower than the trust rate, he is entitled to claim a repayment of the tax overcharged.
The ‘tax pool’ is a record of the tax paid from year to year by the trustees of a discretionary trust, which funds the tax credits available to the beneficiaries. If the tax credits on distributions to beneficiaries exceed the amount available in the tax pool, an additional charge is made on the trustees.
In principle, the tax pool is a reserve of income tax which is available for credit and repayment when the income is distributed to beneficiaries. However, the concept is complicated by the fact that there is a mismatch between the tax reserved in the tax pool and the tax credited to the beneficiaries. This inevitable mismatch is explained by the nature of a discretionary beneficiary’s income.
For an interest in possession beneficiary, the trust is a conduit through which the income passes retaining its character and tax rate. Interest is received net of 20% tax and is recognised as net interest in his hands. Similarly, dividends are received net of tax. Currently, this would be net of tax paid at the dividend ordinary rate of 7.5%; before 6 April 2016, it was net of a non-repayable 10% tax credit. This ‘look through’ treatment reflects the fact that the beneficiary is entitled to the income as it arises.
By contrast, a discretionary beneficiary has no right to the income of the trust until the trustees decide to pay it to him. The income paid over may have arisen in earlier years and some of the income received in any particular year may be retained. Consequently, there is no ‘look through’ treatment to
**Free trials are only available to individuals based in the UK. We may terminate this trial at any time or decide not to give a trial, for any reason.
Access this article and thousands of others like it free for 7 days with a trial of TolleyGuidance.
Read full article
Already a subscriber? Login
The corporate interest restriction (CIR) essentially limits the amount of interest expense a company can deduct from its taxable profits if the interest expense is over £2 million. The actual mechanics of the CIR calculation are highly complex (the legislation is over 150 pages long) and are
This guidance note provides details of quarterly instalment payments (QIPs) for corporation tax purposes and which companies need to pay their tax liabilities in this manner.Generally, corporation tax is payable nine months and one day after the end of the relevant accounting period. However, large
What is structures and buildings allowance (SBA)?From 29 October 2018, expenditure on constructing a non-residential building or structure, or in certain cases, expenditure on acquiring such a building or structure, qualifies for an SBA. The following note has been updated for the changes announced
This guidance note provides an overview of the steps businesses need to take if aspects of their business change, and as a result, they need to notify HMRC about the change.Changes to name and / or addressIf a business changes its name and / or its address then it is required to notify HMRC of the
To view our latest tax guidance content, sign in to Tolley Guidance or register for a free trial.