Taxation of Trusts

Question 1

Income Tax & Trusts

Answer 1

• HMRC views trustees as a single body.
• Tax due is entirely separate from any tax they might have to pay in their capacity as an individual.
• Trustees pay tax under self-assessment in the same was as an individual, i.e. two payments on account each half of the amount paid in previous tax year (Jan 31 of current tax year, Jul 31 of following tax year), balancing payment on Jan 31 of following tax year, CGT also due on that date.
• Each trustee jointly and severally liable for all tax, not just a share of it.
• Usually nominate one trustee to deal with HMRC, but all other trustees are liable for the nominated trustee’s acts and/or omissions and can collect unpaid tax / charge penalties to any / all of the trustees.
• If one UK trustee, then trust usually liable to UK income tax.

Question 2

Income Tax - Bare Trust

Answer 2

Trustee
• None

Beneficiary
• Usually taxed at beneficiary’s rates
• Their personal allowance, personal savings allowance and dividend allowance can be used to offset any tax
• Include trust income on self-assessment

Settlor
• Parental settlement rules apply where beneficiary is under 18
o Where income from all capital gifted by parent exceeds £100 and settlor is parent, it is taxed on the parent
o If income is under £100,taxed on child (beneficiary)