tax on loans from discretionary trus

by **worden** on Wed Jan 04, 2012 3:36 pm

Can somebody please advise. If a loan is made out of a Discretionary trust, the money being pure capital it has not gained any interest, when interest is earned on it by the beneficiary will it be liable to 50% tax? and if the beneficiary is a non tax payer can this 50% be claimed back?

thank you in anticipation

by **tax_schmax** on Wed Jan 04, 2012 5:30 pm

Copied from another thread

If a trust loans a beneficiary money, the trust should receive interest (at a commercial rate) which will attract tax at 50%. The interest on the loan will be income for the trust and that is the reason for the charge. If you as a beneficiary receive the loan, you receive only capital and the interest or profits you generate are yours and taxed accordingly.

Beware, as in my previous answer, if you undertake steps to avoid tax which are contrived and non commercial, you can expect a challenge from HMRC to be difficult and perhaps costly to defend.

by **worden** on Wed Jan 04, 2012 8:54 pm

thanks for that then perhaps i could pose another question. If a trust is set up so that half a house is placed in trust with also capital of 100.000. the other half belongs to one of the Trustees who is also a beneficiary. Can the money in it be used to pay for the upkeep and general bills of the house. Does the money have to be paid out in lump sums or can it be used almost like a current account to pay regular bills.?

by **tax_schmax** on Thu Jan 05, 2012 10:14 am

The trustees can contribute from the trust for their half of the upkeep. Perhaps except for insurance, the general bills will relate to occupancy. Bills relating to occupancy would not be a fair use of the trust capital. The trust has to be managed with the best interest of all beneficiaries in mind. For example, the trustees should consider offering all beneficiaries the right to reside in the property so they can enjoy the asset. You should be careful not to breach the trust.