Tax implications of distributing capital from Discretionary Trust

[MadgeT]

Hi,

I am a Trustee of my late father's discretionary trust set up 2 years ago. As well as investments there is £40k in cash which I would like to distribute to my mother and 6 brothers and sisters. I understand that there are no tax implications as far as the Trust is concerned but would we as individuals have any tax to pay on receipt of a capital payment?

[Lee Young]

I have assumed that the trust was set up under the terms of his Will - is it more than 2 years since your father died? If not then there are no IHT forms to complete. To the extent income has been received it will be deemed to be net of 40% tax in the hands of the beneficiaries and the trustees will have to pay the 32.5% or 40% income tax as appropriate.

If more than 2 years since deah then there will be IHT forms to complete.

Either way a final income tax return should be completed by the trustees.

No tax to pay on the receipt of the capital payment. The trustees may need to consider CGT and hold over relief depending on the nature of the assets involved.

Lee Young
lxy@m-b.co.uk
Solicitor, TEP and Chartered Tax Adviser
Moore & Blatch Solicitors

Direct dial: +44 (0) 1590 625840
Fax: +44 (0) 1590 671224

www.mooreandblatch.co.uk

[MadgeT]

Many thanks for your reponse.

Yes , the nil rate discretionary trust was set up under terms of his will. I had already checked with the revenue regarding paying out the capital and they say there are no tax implications and that they do not even need to be informed. So the only grey area is whether this payment in tax free as far as recipients are concerned and I assume it should be as Dad's assets were under the IHT threshold at time of death - but a little knowledge is a dangerous thing.......