I am trustee of a small accumulation & maintenance trust that wishes to make an income distribution.
For 2005 2006 the rate applicable to trusts only applies to income over £500.
THe current R185 for on the Revenue web site seems to be framed for 2004 2005 - and grosses up all income assuming a 40% rate.
I am unsure how to complete the R185.
Advice received from the Inspector over the phone is that, the first £500 of income is entered in the lower half of the form on the basis that no additional tax is payable - with the rest entered in the top half of the form assuming a 40% rate. If this is done I believe an element of the tax pool will never be recovered. Also it seems strange that the Revenue haven't amended the form to cater for this situation. Any thoughts/published guidance on this would be much appreciated.
(If the Inspector is right the issue worsens in 2006/07 wihen the £1,000 limit comes in.)
David Lewis
Replies (3)
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That is my understanding
I would expect that in a case where the trust income consistently falls within the £500/£1000 limit and is always paid out in full to the beneficiaries, then the exemption from tax on the trustees at the discretionary rate is something of an illusion. Once any brought forward tax pool is exhausted, the effect of the 40% tax credit on the distributions would be to give rise to an equivalent liability on the trustees.
At least, that's my reading. Happy to be contradicted.