Discretionary Trust - Tax on Distributions of Income

[Cedric]

The Trust fund is currently held on deposit.

Is it more advantageous to distribute income to benficiaries (basic rate taxpayers) or to roll it over?

Are there any limits or restrictions to timing of payouts?

[Lee Young]

Trustees pay tax at 40%, the beneficiaries at 22%, therefore the beneficiaries can reclaim the overpaid tax.

As reragrds the timing issue you should look at what the deed says, but the tax pool can be carried forward indefinitely.

[Cedric]

Lee

Thanks for your response. the Deed makes no stipulation on distribution of either income or capital (The Trust was set up last year under a DoV on my father-in-law's will).

If no distribution to beneficiaries is made in this tax year, I assume that the Trustees have to pay the additional 20% tax soon (20% already deducted at source).

Does the 40% tax credit carry forward so that beneficiaries can reclaim the additional tax paid at a later date? Or does the tax credit 'expire' in the new tax year? This clearly has implications for the best course of action.

John

[Lee Young]

Tax credits do not expire - that is the tax pool point I made.