An employee has held loan notes inside an Employee Benefit Trust (EBT) for over 10 years. Recently, he has cashed in his loan notes and he received gross interest of £4217. The trustees of the EBT have deducted trust tax at the rate of 45% of £1897, leaving net interest of £2320. The employer then further deducted employers NIC at 13.8% of £320, employees NIC at 2% of £46 and PAYE at 40% of £928. After all these deductions, my client is left with £1025 net interest from the original gross interest of £4217, an effective tax rate of 77%! Is this right?
Also, how is he suppose to show this in his tax return? Does it go on the trust pages, other interest box or employment income pages?
Thank for your assistance in advance.
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