Tax on Trusts

[Forester]

Hi everyone,

Trying to navigate being a Trustee for the first time. Along with others, responsible for looking after a small (in some eyes) sum of £12k for a minor until they reach the age of 18. I understand about the £500 limit on interest before 45% tax is payable, but if there is tax to pay, is it calculated just on the Interest amount that has been received, or the initial lump sum invested plus the interest when paid to the Beneficiary?

If it's the latter, it's a massive tax charge for a smallish sum. If the 45% is paid just on the accumulated interest, then that's less of a worry.

Can anyone please clarify?

[AGoodman]

The legacy sum itself is not income so no income tax on that at any point.

The trustees pay trust rate (45%) tax on interest annually. In case you don't know, if you distribute net income to the child rather than accumulate it (and before they reach 18), the child gets a tax credit for any tax paid and should be able to reclaim it using their personal allowance.

If you retain income and accumulate it, it ceases to be income. This means that the child is considered to just receive capital when you distribute it to them. Generally speaking, any income that has accrued when the child turns 18 (and become entitled to it) will be considered to be accumulated. There shouldn't be any income tax payable at that point, only capital gains tax if you have invested and the investments are standing at a gain on the 18th birthday, when the child becomes entitled to the fund.