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Where Taxpayers and Advisers Meet

Disabled/Vulnerable Persons Trust Query

Jholm
Posts:360
Joined:Mon Mar 11, 2019 4:22 pm
Disabled/Vulnerable Persons Trust Query

Postby Jholm » Tue Mar 30, 2021 3:40 pm

Hi all,

Quite a niche query to anyone involved with trusts....

With a disabled person's trust, I understand the following:

1. All income must be distributed to the beneficiary each year, with the exception of £3,000 / 3% trust value

2. A special claim for tax deduction can be made, as if the income arose on the beneficiary, substantially reducing the tax payable.

Is there actually much benefit in making this claim so far as trust income is concerned? Since almost all income must be distributed, it seems to me that where tax is saved by making the claim, it creates a shortfall in the tax pool (based on the tax on distributions that MUST be made).

Figures below to give an example (not accurate tax figures but you get the idea)

Trust income of £100k. Trust tax would be 45%, so £45,000 (exc. first £1k @ 20%) but a claim for deduction makes it (say) £20k. Trust is obliged to distribute all income so must pay (basically) the difference back to avoid a negative tax pool (assuming first year, no b/f etc).

Am I missing something? Happy to be told I'm being silly.

Thanks in advance.

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