Trust income in a company

Trust income in a company

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A group of people settle a property into a trust which they are also the beneficiaries of.  They get taxed on the income of the trust as they have an interest in it.

Some of them then set up a company which they are equal shareholders in and assign their beneficial interest in the trust to that company.  The question now is who gets taxed on the income and eventual gain on the sale of the property, and how is the purchase of the interest shown in the companys accounts?

Any thoughts would be appreciated.

Replies (11)

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By uktaxpal
28th Nov 2011 16:21

is this an investment with the trust paying all taxes?

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By Dave M
28th Nov 2011 16:47

Not sure as we dont do the trust accounts but since it is a settlor interested trust the individuals get assessed on the trust income.

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By uktaxpal
28th Nov 2011 17:04

need to look at trust instrument to determine nature and extent of coys interest

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By Marion Hayes
28th Nov 2011 23:48

This is still settlor interested

As this is still settlor interested the taxation continues to be with the individuals.

 

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By Dave M
29th Nov 2011 09:47

uktaxpal, the company's interest would now be the rights to its share of income and sale proceeds on disposal of the property.

Marion, this is what I had feared. s625(1) ITTOIA 2005 circumstances do no longer seem to apply as the interest has been assigned, however it says an interest in "property or any related property" would the shares in the company be classed as related porperty?

If it is taxed on the settlor still would the company have corporation tax to pay as well?

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By Marion Hayes
29th Nov 2011 14:23

Hi Dave

A settlor interested trust exists if the settlor has any type of interest in the trust. Moving the beneficial interest into a company they also own means they are still a beneficiary of the trust.

My instinct would be that the income cannot be taxable in the company - tax paid elsewhere - but tax of some kind will bew due on getting the income out of the company.

What was the purpose of the transfer?

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By Dave M
29th Nov 2011 16:23

Hi Marion

I agree, I think the purpose was to pay tax at in the comapny as opposed to personally.

But more information has come to light.  The property was not settled into the trust it was purchased by the trustees on the same day the trust was set up.  The trust being set up merely to make the dealings with the land registry etc easier to cope with due to the number of purchasers / beneficiaries.

Do you think this makes any difference?

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By Marion Hayes
29th Nov 2011 20:52

Evening Dave

I think you need to get a specialist to cast a quick eye over the documentation.

If the property was purchased, and at full market value, then there may not been a transfer of value, but where did the funds come from. If it was from the beneficiaries I would still  expect this to be a settlor trust situation as the settlor legislation catches any property directly derived from the settled property i.e. the money settled

If you have avoided the trust situation then the income will be taxable within the company.

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By uktaxpal
29th Nov 2011 22:26

confused
do you mean the property was transferred to trustees?

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By Dave M
30th Nov 2011 11:33

uktaxpal

the property was bought by the trust from a third party

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By uktaxpal
30th Nov 2011 13:39

need more info about trust and beneficiaries

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