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Where Taxpayers and Advisers Meet

re: discretionary trusts and non resident

cmskelley
Posts:4
Joined:Sat Mar 14, 2015 10:11 pm
re: discretionary trusts and non resident

Postby cmskelley » Tue Sep 29, 2015 9:10 am

hi i dont really understand how income from a discretionary trust is taxed and credited as a non resident with a personal tax allowance. as far as I understand, income from trust itself is taxed at something like 40%. For example a trust generates 5000GBP of income from a property rental..the trustee distributes this in full to a single beneficiary who is a non resident with a personal tax allowance. The trust is taxed lets say 2,000GBP and 3,000GBP is distributed. (How) Is it possible to claim the full 2,000GBP back as a non and non resident tax payer?

LozaACCS
Posts:1504
Joined:Wed Aug 06, 2008 3:55 pm

Re: re: discretionary trusts and non resident

Postby LozaACCS » Wed Sep 30, 2015 8:57 am

I assume the trust is UK resident.
The income is taxable on the trustees at the Rate Applicable to Trusts (RAT).
In this case 1000 will be taxed at 20%, 4000 at 45%, so 2000 in total.
An income distribution to you will be treated as being made net of tax at 45%, so your R185 issued by the trustees will show a net payment of 3000, tax paid of 2455 and a gross payment of 5455
You enter the R185 gross figure on your tax return and claim the tax credit.
The problem is that the trustees have not paid enough IT to cover the income distribution to you so an additional liability arises under S497 ITA 2007.(assuming there were no balance on the tax pool B/Fwd), in this case the additional tax would be £455.
To avoid this the maximum net distribution would be 2444.
You also need to consider S811 ITA 2007 to decide whether it is worth claiming the PA or not.


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