Settlor interested trust

Settlor interested trust

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Afternoon all,

I’m dealing with a settlor interested trust for the first time and am having difficulties trying to work out what figures go in which boxes. I have searched the Internet and even tried to ask HMRC (what a waste of time that was) all to no avail, so I’m hoping some kind soul on accounting web might be able to offer some assistance.

I’ve ignored the standard rate band on the trust for the moment and assumed that the settlor is a basic rate payer.

The trust receives a net dividend of £10,000
In the hands of the trustee the tax liability would be

£10,000 x 10/9 = £11,111 x 42.5% = £4,722 – £1,111 = £3,611

I’m happy with the calculation from the trust side.

On the settlors personal tax side the dividend income (I think) should be

£10,000 x 10/9 = £11,111 x 10% = £1,111 - £1,111 = 0

The settlor receives a credit of £3,611 which he can reclaim and needs to repay to the trust.

I’m fairly comfortable with the theory, its how to complete the R185 Settlor and the personal tax return that’s driving me mad.

Should box 12 on the R185 settlor read £6,388 net div and £4,723 tax? I.e. the £4,723 is 42.5% of the gross dividend (£11,111 x 42.5% = £4,723)?

That way on the settlors tax return the gross dividend is £11,111 x 10% = £1,111 - £4,723 = £3,611 to reclaim.

Or am I just completely missing the point????

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