Life Time Trust

[kumar9]

A life time Trust was set up my brother who has passed away
Currently , two brothers , one the settlor( NON RESIDENT for UK Tax) the other, manager Trustee( UK resident for Tax purposes) ,with very wide powers, run the trust
The trust had 10s of 1000s pounds of accumulated debts ( owed to the managing Trustee) who had been paying all very substantial service charges all the years the flat was NOT rented + costs of two attempted sales where the buyers pulled out last moment + attempts at Lease extension, aborted due to very high costs demanded.
Property was finally rented out almost for the last two years
The trustees decided to pay off the debts before considering distribution to the two trustees
After almost two years of letting , the income has begun to exceed the accumulated debts
What are the tax implications if distribution is begun?
Thank you

[AGoodman]

Your first sentence says that the brother who set up the trust has passed away.
Your second says that the settlor is one of the people running the trust.

The settlor is usually the person who set up the trust. Can you explain?
Also:

- you mention that one brother is the "managing trustee". Is the other brother also a trustee or just helps out?
- the tax position depends entirely on the nature of the trust. Is it a discretionary trust, where the trustee(s) have a discretion over who benefits? Or is it more akin to simple co-ownership between the brothers.

If the trust is discretionary, the trustee(s) should have been paying 45% income tax on all the rental income. It is unlikely that most of the debts would be deductible for income tax purposes. On a distribution, the beneficiaries would receive the income with a 45% tax credit, which should be recorded on form R185. They can then set that against their own tax liability or reclaim the excess over their own marginal rate. It can be complicated so I would strongly recommend you get an accountant to do it for you. I assume the trust is registered with the Trust Registration Service and you would have had to file a CGT return when selling the property.