income tax on rental income from house held in trust

[worden]

Hello there

wonder if someone can advise

1: If 1/2 house is put into a Discretionary Trust by Deed of Variation and that person is A Trustee and a beneficiary. If later that 1/2 house is let out, i believe the income derived will be taxed at 50%. If this income is then given to the person who has executed the DOV to help with care home fees can the tax be claimed back? Who is the settlor of the Trust, the person who died or the person who made the DOV ?
Secondly if the money is given to any other of the beneficiaries what are the tax implications--- can some of the tax be laimed backif they are a 20% tax payer?

Thank you for your time

[maths]

If the DoV created the trust the settlor is the deceased for IHT purposes.

However, for income tax and CGT purposes, the settlor is the person executing the DoV.

If the person executing the DoV is also a beneficiary then for income tax purposes the trust is settlor interested.
The trust income is that of the settlor and taxed on him (with a credit for any tax paid by the trustees).

On any distribution to other beneficiaries any income tax paid by the trustees is not reclaimable.

[worden]

thank you for your reply Maths --- but i am a little confused. i have read that even if the money is paid out to other beneficiaries the Settlors tax rate is taken ito account all be it by claiming back is this wrong ---- copied from tax site "Where the trust is settlor-interested, the income can even be distributed to a beneficiary who pays tax at
50% and yet the income would only ever be taxed at the settlor's own marginal rate. In other words, the
settlor trumps both the trustees and the recipient beneficiary when determining whose marginal rate
should apply to the trust income.

?? thank you ---would be grateful for any imput

[maths]

The income of a settlor interested trust is taxed on the settlor at his marginal rate.

If trust income is distributed to a beneficiary other than the settlor no tax arises on the beneficiary as he is deemed to receive a tax credit of 50% which relates to the tax paid by the trusteees. However if the beneficiaries marginal rate of tax is say 20% he is not entitled to any refund of the 50% tax credit.

In your language, yes, the settlers marginal rate trumps all others!!

[worden]

thanks Maths

can i trouble u further just to make sure ----

--- sorry i am probably being a little dense here --- but does this actually mean that 50% tax is actually paid by the Trustees before being paid out to other beneficiaries ? or there is no tax paid if the seetlor is a non-tax payer?

[maths]

--- sorry i am probably being a little dense here --- but does this actually mean that 50% tax is actually paid by the Trustees before being paid out to other beneficiaries ? or there is no tax paid if the seetlor is a non-tax payer?

1. The trustees pay out income tax at the 50% rate on the trust income.

2. The settlor is assessed at his marginal rate say 40% on the trust income. He is entitled to offset the 50% paid by trustees. He then reclaims the 10% from HMRC but has then to hand it over to the trustees (thus only 40% tax has been paid).

3. If settlor is a nil taxpayer then he reclaims the whole of the 50% tax paid by trustees from HMRC and then hands it over to the trustees; in effect no income tax is paid on the trust income.

4. If trustees pay out say £150 cash to a beneficiary, the beneficiary is not liable to income tax thereon (as the settlor was liable even if at 0%).

[worden]

Thank you so much for your clear reply --- now i understand !!

[maths]

Tricky stuff all this crap !!