The following Trusts and Inheritance Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:
Payments made by a non-UK resident trust to UK resident beneficiaries are governed by a series of ‘tax hierarchy’ rules, which govern the tax treatment of the amounts received by the beneficiary. See the Tax on UK resident beneficiaries of non-resident trusts (overview) guidance note.
The first step is to determine whether the payment is a distribution of income. If it is, the payment is subject to income tax according to the principles set out in the Tax on income distributions from non-resident trusts guidance note.
If the payment is a ‘capital payment’ and the beneficiary is not the settlor, the primary charging provision is the transfer of assets abroad code (TAAC), which taxes individuals receiving a benefit. This is an income tax charge on the beneficiary calculated with reference to the amount of Available Relevant Income (ARI) within the trust.
If there is no ARI against which to match the beneficiary’s payment, the provisions of TCGA 1992, s 87 are to be considered. This is a capital gains tax charge on beneficiaries, calculated with reference to the amount of undistributed capital gains within the trust.
This guidance note explains how each charge works and the interaction between the two.
Income tax may be charged on a UK resident individual in a tax year if:
a relevant transfer has occurred, and
he ‘receives a benefit’ in that tax year from assets available as a result of the transfer
ITA 2007, s 732
For an explanation of the term ‘relevant transfer’, see the Transfer of assets abroad code guidance note. In broad terms, the creation of a non-resident trust constitutes a relevant transfer but the code does not apply if it can be demonstrated that no tax avoidance motive applied.
Receiving a benefit is not defined in the legislation. It is accepted that any kind of payment is covered and, historically, it has been HMRC’s view and that of the courts that the use of property and
**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
IntroductionUK tax must be withheld on UK payments including:•interest•royalties•rental incomeWithholding tax may be reduced under double tax treaties (DTT) or European directives, both of which may be subject to making a formal claim.This guidance note outlines the rules for UK withholding tax, and
The basic rule is that all benefits provided to an employee by reason of their employment are taxable unless there is a specific exemption or other rule that means they are not chargeable to tax.ExemptionsThe main exemptions for employee benefits are in ITEPA 2003, ss 227–326B (Pt 4).Below is an
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
Expenditure of a capital nature is not allowed as a deduction when calculating trading profits. Expenditure of a revenue nature is allowable, provided there is no specific statutory rule prohibiting a deduction and the expenditure also satisfies the wholly and exclusively test. See the Wholly and
To view our latest tax guidance content, sign in to Tolley Guidance or register for a free trial.