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Discretionary Trust Return

Rate of tax deduction

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I've been asked to complete a Trust Return and a personal Tax Return for someone who has received money out of the Trust.  The Trust was removed from SA a few years ago on the grounds of lack of activity.  Until now no payments have ever been made out of it and its only income has been a few dividends and bank interest.  It has total assets of about £80K. I try to steer clear of Trusts but hate turning work away!

The client told me the Trust paid him £5000 net.  He is one of the Trustees along with his sister. I did his personal Tax Return and, assuming I put it in the correct place, the software grossed it up to £9090.91- a rate of 45% which i think is correct. He's queried it on the basis that his mother wouldn't have meant such a rate to be deducted as, I assume, when I complete the Trust Return, that will have to pay the tax over.

I've purchased a one user licence from Andica for the Trust Return but, at the moment, that's as clear as mud!

Am I on the right lines all you trust experts out there?



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22nd Jan 2019 14:26

Wouldn't profess to be an expert but assuming it's income he has been paid you are on the right lines.
Lovely that he's querying it on the basis of what Mum wouldn't have meant to do. If only all tax law was written that way!
(Bear in mind Trust tax is pretty punitive these days and may be vastly different from when Mum set up the Trust.)

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22nd Jan 2019 14:57

The trustees pay tax. The beneficiaries claim it back. ‘Twas ever thus.

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to Tim Vane
22nd Jan 2019 15:23

Wise words. But, too, trustees generally pay out income only after they have received it. To the extent that what has been paid out is income, your words apply. Here, it sounds as if they may have, or may have also, paid out something other than income. The tax position could in consequence be very different.

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22nd Jan 2019 16:22

"I try to steer clear of Trusts". You should have stuck to that. I do!

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22nd Jan 2019 16:51

As Tax Dragon says, the trustees can't pay out income they haven't received. And income accumulated in earlier years may well have been capitalised. You need to identify what has been paid here - a capital distribution, an income distribution or a mixture. Best not to dabble in trusts, to be honest. They are rarely straightforward. When my clients take on a new trust client, I often have to help them sort out the mess made of the tax position by the previous accountants. In some cases they have completed returns on the basis that the trust is discretionary when it is actually an interest in possession trust - or vice versa - because they didn't understand the wording of the trust deed!

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to cathygrimmer
22nd Jan 2019 17:59

I agree with all you say.

As you have given the Aweb-friendly abridged version, I suspect I agree beyond what you say!

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