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Where Taxpayers and Advisers Meet

Disc Trust provides a loan to beneficiary (Tax Implications?)

maths
Posts: 7894
Joined: Wed Aug 06, 2008 3:25 pm

Re: Disc Trust provides a loan to beneficiary (Tax Implications?)

Postby maths » Thu May 21, 2020 2:39 pm

Jerome

Citing articles etc does not count as legislative support.

I would add that your article/conference references have no relevance whatsoever to the current poster's questions and situation. They are only of relevance where the trust is a non-UK resident trust and irrelevant where the trust is UK resident as is presumably the situation here (ie there is no evidence to suggest otherwise).

ITA 2007 s 493 which you cite as legislative support for your views is also irrelevant. The section only sets out under what conditions ss 494 and 495 are in point. The section deals with payments by a discretionary trust where the payment is treated for income tax purposes as income of the recipient (Condition A) or the payment is to a minor child of the settlor (and is treated as income of the settlor under ITTOIA 2005 s 629) (Condition B).

Neither A nor B apply here. What the beneficiary receives is a loan (not a discretionary payment).

The fact that "payment" is defined to include "payment in money's worth" (493(5)) is again irrelevant here.

Unfortunately, a disadvantage of the Forum is that those responding have to make assumptions where the post is vague or ambiguous and often all the facts are not provided. Capital sums made to a settlor (including a loan/repayment of a loan) by a trust can precipitate income tax charges but the manner of charge depends upon "undistributed available income" [ITTOIA 2005 s 633]. There is no reason to believe from the post this is the case here.

jerome.lane
Posts: 221
Joined: Mon Aug 12, 2019 8:41 am
Location: Sandhurst, Berkshire
Contact:

Re: Disc Trust provides a loan to beneficiary (Tax Implications?)

Postby jerome.lane » Thu May 21, 2020 2:59 pm

We’ll just disagree then. I would consider the beneficial payment is the interest foregone which could also be a distribution for IHT purposes.
Jerome Lane
Tax Adviser
Telephone: 07943 005902

maths
Posts: 7894
Joined: Wed Aug 06, 2008 3:25 pm

Re: Disc Trust provides a loan to beneficiary (Tax Implications?)

Postby maths » Thu May 21, 2020 3:10 pm

jrullion

As you can see Jerome and I disagree which is not uncommon in the tax world but is perhaps unfortunate for you as you are no doubt left in the air.

All I can suggest is that you consult a third party to ascertain their views or possibly someone else will post and you will then have some comfort assuming the poster agrees either with Jerome or myself.

AGoodman
Posts: 1043
Joined: Fri May 16, 2014 3:47 pm

Re: Disc Trust provides a loan to beneficiary (Tax Implications?)

Postby AGoodman » Thu May 21, 2020 10:41 pm

At the risk of piling on, I agree with maths here. An ordinary interest free loan from a UK resident trust would not generate a tax liability.

There has been a whole industry around trust loans which are never intended to be repaid - and consequential HMRC attacks with the "loan charge" - but their ire is aimed squarely at trusts funded by people's employers to avoid income tax.

cliffordpope
Posts: 78
Joined: Thu Jun 24, 2010 8:45 am

Re: Disc Trust provides a loan to beneficiary (Tax Implications?)

Postby cliffordpope » Fri May 22, 2020 6:08 pm

The ‘benefit’ of an interest-free loan is taxable at the ‘official rate of interest’ (currently 4%),
Are loans from the Bank of Mum and Dad taxable?

maths
Posts: 7894
Joined: Wed Aug 06, 2008 3:25 pm

Re: Disc Trust provides a loan to beneficiary (Tax Implications?)

Postby maths » Fri May 22, 2020 7:17 pm

NO.


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