Chapter 5 – Other Taxable Income

Question 1

trust income and parental settlements

Answer 1

Trust Income – the way in which this is taxed depends on what type of trust the income comes from. If a taxpayer receives income from a discretionary trust, they are deemed to have done so net of 45% tax deducted at source. However, the gross amount needs to be included in the tax computation, so you need to gross up the figure 100/55. Discretionary trust income is non savings income and the individual can deduct the 45% tax credit from his tax liability.
When non savings and savings income is received by the trust it will be taxed in the hands of the trustees at 20%, dividend income is taxed at 7.5%. The savings allowance and dividend allowance are not available when calculating tax payable by trustees. The income paid to the individual is received net of basic rate tax or dividend income received net of 7.5% tax. The income is grossed up and the individual deducts the tax credit when calculating the tax liability.
Parental Settlements – when a parent provides funds to their children, the income is taxed on the parent. This includes when a parent sets up a trust for a child or places finds on a building society account for the child. The parental settlements rules only apply where the funds are settled by a parent and where the child is unmarried and under the age of 18. There is an exception where the gross annual income generated by the parental funds is £100 or less.

Question 2

unit trusts, company loan stock interest, joint income

Answer 2

Unit Trusts – you can receive dividends or interest from this. If you receive a dividend from a unit trust it is taxed in the same way as normal dividends. If you receive interest from a unit trust the interest will be received gross and taxed in the same way as other interest.
Company loan stock interest – interest income on company loan notes is received net of 20% basic tax rate. The taxpayer receives the net amount after the tax has been deducted. The interest must be grossed up 1oo/80, and the individual can deduct the 20% tax credit from their tax liability.
Joint Income – receives jointly by spouses or civil partners, the income needs to be split between the two taxpayers. The most common way is to split the income equally between the two parties. You can also make an election to split the income in accordance with their beneficial entitlement.

Question 3

qualifying care relief

Answer 3

Qualifying care relief – an individual has qualifying care receipts if they provide foster care or shared lives care, only applies to receipts from specified social care schemes. If total receipts from qualifying care do not exceed the individual’s limit the receipts are not subject to income tax. When calculating total receipts, no relief is given for any expenses incurred in relation to the provision of the care. If the qualifying care receipts exceed the individuals qualifying amount for the year, the individual can either be taxed on the gross receipts minus any expenses (profit method) or the gross qualifying receipts less their individual qualifying amount (simplified method). For the simplified method the individual must make an election on the first anniversary of 31 January following the end of the tax year (31 January 2022 for 19/20).
An individual’s limit (qualifying amount) is made up of two elements:
• A fixed amount of £10,000 per annum and
• A weekly amount for each person placed with them (weekly amount is £200 for each child under 11 and £250 per week for over 11)