Income tax adjustments between settlors and trustees
A person who sets up a trust (a settlor) can receive repayments of tax on trust income if their personal income tax rate is lower than that of the trustees (the body that runs a trust). The measure outlined requires that the repayment must be paid over to the trustees by the settlor. The repayment paid to the trustees will not have inheritance tax implications.
Who will be affected?
Individuals who are assessable on the income of trusts that they have created. Such an individual will be assessable on the income if they, their husband/wife/civil partner can benefit from the trust or if their minor children actually do receive a benefit from the trust.
The measure is to take effect for repayments received in respect of income tax chargeable from 6 April 2010.
The measure prevents a settlor receiving potentially unwanted repayments from the trust as a result of tax rate differentials. This allows them to return any benefit they receive to the trust without adverse tax implications which would otherwise result from adding cash to the trust. This is to be welcomed because the settlor will often have set up the trust to benefit future generations of the family and will not want its value to be diminished.