Trust Taxation

Trust Taxation

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A trust was formed in 2006 .

We have the option to increase the value of the trust by the RPI

Would the increase in value be chargeable as CGT on the trust or taxable as income tax to it?.

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By gbuckell
14th Jun 2013 13:25

?

What do you mean by increasing the value of the trust?

Who is we?

Unless the trust is actually making a gain or receiving income it is unlikely to be taxable but that is just my guess without knowing more.

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By LyneT
14th Jun 2013 13:54

Do you mean that the settlor or another settlor is adding funds to the value of the trust to bring the value of the trust in line with the RPI?

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By pwright
14th Jun 2013 14:36

The trust is in the form of a debt, which the trustees have a right to increase by the RPI.

It was set up to mitigate IHT between spouses before you could transfer the NRB.

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By AB_85
14th Jun 2013 18:45

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Are you saying that on the death of the first spouse a nil rate band discretionary trust was settled, as was once common, and the trustees then loaned the capital of the trust fund to the surviving spouse? If so what were the terms of the trust deed and any loan instruments over the IOU?

Where money is lent without interest or at a low rate of interest, I would say the premium on repayment would usually be in the nature of, or in substitution for, interest and would be an income receipt.

The uplift would be taxable at the trust rate (45%). This may well be unattractive. Given the receipt is in the nature of rolled up income, I would have thought as a matter of trust law it is an accretion to the fund's capital account (albeit within the scope of income tax). So tax paid by the trustees is unlikely to be available to frank future income distributions out of the tax pool.

It ought to be possible to waive the right to interest on repayment of the debt and make further additions to the trust fund without facing such a steep tax liability, although obviously this would depend on the specifics.

There is a fair amount of supposition in the above given the lack of detail.

 

 

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