Trust Income Tax - Does De Vigier (1964) Apply?

Trustees/Settlors Pay Cash From Own Pockets. Does Repayment Of The "Loan" Cause Trust Tax Problems?

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I do not know if I am overthinking this matter. But it must be a very common situation when cash-only tradesmen are involved.

Husband and wife set up discretionary settlement a few years ago by transferring two rental properties into it. They are also trustees of this settlement.

Trust income is more or less being allowed to accumulate within the settlement as a reserve against potential property repairs, particularly because one of the roofs may need replacing in the future.

I have strongly advised Trustees to pay for all trust expenses from the trust bank account.

However, in the real world, some tradesmen will only accept cash (e.g. annual gas checks, plumbers fixing tap washers etc.) and so refuse to accept any settlement cheque. So Trustee ends up paying cash from own pocket and much later (if they can remember) the Settlement reimburses the Trustee.

Are these cash transactions to be construed as loans, and do they fall foul of the income tax anti-avoidance rule of the De Vigier tax case (De Viger v IRC [1964] 2 All ER 907, [1964] 1 WLR 1037, HL).

Since there is an expectation of repayment, they look like loans to me.

Or am I just going daft.

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By Montrose
07th Dec 2018 00:10

I think you are spot on. This is clearly within the De Vigier ruling-the purposes of the loans are immaterial.

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Replying to Montrose:
By penelope pitstop
07th Dec 2018 17:01

Fascinating.

I suppose one practical solution is for the Trustees to always have a cash float of a couple of hundred pounds on hand originating from the Trust bank account.

But the position is not as bad as it seems due to what it says in one tax reference book where it indicates that the income tax paid by the Trustees in respect of the undistributed income which is taxed on the settlor is credited to the settlor, although there will be mismatches of tax credited depending on the type of trust income and the history of that income.

But it would be far better if the problem did not exist because it catches innocent cash transactions where the Trustees do not have sufficient cash on hand.

And it adds another layer of unwanted calculations .

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