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Loans Made out of Discretionary Trusts-

A discretionary trust wishes to be wound up but there are loans made to beneficiaries.

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A discretionary trust has made a number of loans to the beneficiaries and loan agreements have been signed. The trustees now wish to close the trust down and distribute the monies to the beneficiaries. Firstly do these loans need to be repaid into the trust before the trust can be closed down or can the loan monies be reassigned as monies due to the actual beneficiaries that are due to receive them without the need for repayment of the loan. What are the tax consequences of the loans been written off by the trust for both the trust itself and the individual who received the loans. Any relevant tax legislation would be useful for further research.

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By johngroganjga
01st Apr 2022 11:32

Are the loans pro rata to the debtors’ entitlements to the trust assets?

Do you think there is a difference between the tax consequences of the trust making a loan and then waiving it and the trust making a distribution of the same amount?

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By Tax Dragon
01st Apr 2022 13:11

How many questions is that? (Why are the only question marks - which are useful in helping the reader understand what is written - in the responses?)

Do you mean that there is a loan to X but the distribution will be to (a different) Y? If so, clearly you do not have the same financial end position if you get repaid the debt and distribute the cash compared with if you distribute the debt. And the tax consequences reflect that. If X and Y are the same person, then - what John said.

Remember the restriction ("to that (that is the original)") in s251 TCGA 1992 - compared with the unrestricted definition in ibid. s21(1).

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