Will Discretionary Trust

[appingirl]

Hi,
I wonder if someone could help me. Both I and my husband are Trustees to my late sister-in-law's will.

She left her estate to her grand niece and nephew (our grandchildren) who are currently aged 14 and 12 respectively.

I am the one responsible for filling in the Trust and Estate Tax Returns.
Tax on bank interest earned was due to be paid to HMR&C for year 2009/10 so I registered on 41G (Trust).
I completed the Trust and Estate Tax Return SA900 for y.e.2010. Since all the funds were tied up in a Guaranteed Reserve A/c I could no obtain any money from the Trust to pay the Tax bill. I therefore paid it from my own savings. I also had to pay from my savings the 1st payment on account towards the 2011 tax bill. I am about to pay the 2nd payment due by 31st July towards the 2011 tax bill.
However, there is an Unused Tax Pool Carried forward to y.e.2011 of just over 4K.

Also In July 2011 more funds became available to the Trust as it received interest to the value of approx 6K.

That sets the background.

What I would like to know is. I need to be reimbursed for the tax I have paid. How can I do this?

Should I get two Childrens' Accounts set up and pay in half of the Tax Pool carried forward so that the children can claim 50% tax and they pay me from this? Is this legal? Can I use some of the interest just paid or will this jeopardize the Tax Pool for 2011?

[maths]

It appears that you have discharged a liability of the trust. There is thus a debt due to you from the trustees.

Any reimbursement by trustees to you of the amount owing is tax neutral.

If the trustees effect an income payment to one of the beneficiaries the normal tax consequences follow. However, the trustees cannot assign their indebtedness to the children.

[appingirl]

Thanks,

Not sure I understand. I take it that I cannot take the Tax Pool route as this affects the beneficiaries.

As a Trustee who is owed monies, can I reimburse myself from the bank interest on Trust funds? I am not sure what effect this will have on the next Tax Pool.

Perhaps there is somewhere on the SA900 which allows me to claim back the monies paid on behalf of the Trust.
I am just about to try to complete it!?! Wish me luck.

Many thanks for your comments.

PS. Do you know whether the Tax Pool is charged tax each year as it builds up. Would it be wise to pay it annually to the beneficiaries?
Appingirl

[maths]

The tax pool is not something available to be distributed; it is the aggregate of the trustees' tax liability on trust income.

It is used to offset the tax charge which arises on any distribution of trust income to the beneficiaries.

You can reimburse out of the interest income.

[appingirl]

Thanks maths,

I will reimburse from the bank interest.

I'm still not sure how the Tax Pool works. Is it just a record of the tax paid by the Trust?

I am trying to pay the beneficiaries some money each year whilst they are non-tax payers so they can claim back the 50% Trust tax. Is this called a tax credit?

I understand the info from HMRC "When the trustees pay tax at the special trust rates, the tax pool increases by the amount of tax paid (50%)."
However I don't understand "When the trustees pay income to beneficiaries the amount in the tax pool is reduced by the value of the 50% tax credits on any payments to beneficiaries have been deducted." Does this mean the Trustees can only pay the beneficiaries the equivalent of what is in the Tax Pool?

Sorry if I'm a bit thick! What implications to the taxation if the beneficiaries are paid say 5K each year (or the sum most appropriate to what their tax allowance is).

I appreciate your time, and patience.
Regards

[maths]

Trust income 100
Trustees tax liability @ 50% ie 50 (this goes into the tax pool).
Net income 50.

Trustees now pay beneficiary the 50.
The trustees are deemed to actually make a payment of [50/50%] making a "gross" payment of 100 and now are regarded as owing 50 units of tax; however, this 50 is regarded as being satisfied by the 50 the trustees paid on their income of 100 (ie the 50 in the tax pool; the tax pool, is now nil ie 50 less 50).

Beneficiary subject to tax at their rate (eg 20%) ie 100 @ 20% giving 20.
However, beneficiary has a tax credit equal to the 50 the trustees are deemed to have paid when they made the 50 payment.
Beneficiary thus reclaims from HMRC 30 (ie 50 less 20).

[appingirl]

Many thanks maths,

I'll get on and get their mum to open Childrens accounts and then, since they are aged 12 & 14, get the relevant forms for them to claim back tax at 50%.

Good night

[appingirl]

Hello, I have another question I would like to ask.

So far I have only paid Trust tax on the bank interest income. How about Premium Bond winnings, should I declare them?

Would be most grteful for your advice.