Taxation

Question 1

What is the income tax liability for a beneficiary of an Interest in Possession trust?

Answer 1

Trust income added to other income in the tax year

Trustees liable for BRT on trust income and pay tax on behalf of beneficiary

Beneficiary is entitled to a tax credit for any tax paid

If BRT = no more tax to pay
If HRT/ART = further tax liability
If non-taxpayer = reclaim some or all of tax deducted

PSA/dividend allowance can be used as appropriate/available - beneficiary only

Question 2

How are trustee expenses treated on an IIP trust?

Answer 2

Not entitled to tax relief on expenses

Could save costs by mandating income direct to beneficiary

Expenses reduce income paid to beneficiary

Tax paid after deduction of expenses, grossed up

Set against income in following order:

UK dividends
Foreign dividends
Savings income
Other income

R185 form

Question 3

What is the CGT annual exempt amount for a trust?

Answer 3

Qualify for half the standard CGT annual exempt amount of £12,300 = £6,150 for a single trust

If more than one trust exists for the settlor the allowance is divided by number of trusts up to max of 5

If any further trusts are created then it is divided up again

Question 4

Explain CGT holdover relief on transfer to a trust?

Answer 4

Allows realised gains to be deferred for transfer into a discretionary trust

All trustees have to agree to applying for the gain to be held over that would otherwise be chargeable to CGT on disposal

No CGT is due on settlors gift into trust

Market value on the day the shares were transferred to trust would be reduced by the amount of held over gain leaving the trustees acquisition base cost as the original cost settlor acquired them.