Who can we help with Trusts?
Trusts and Estates case studies:-
Beneficiary of a UK Discretionary Trust
Mr K recently contacted us to advise that he was self-employed, earning in the region of £23,000 a year and wanted us to deal with his personal tax return for the year ended 5 April 2011. Upon further discussions, we were advised that Mr K was one of a number of beneficiaries of a family discretionary trust. He advised us that he had received cash distributions from the trust during the past two years but had not advised the H M Revenue & Customs of this.
We reviewed Mr K’s previous tax returns, prepared the relevant trust supplementary pages to these returns and the tax deduction certificates which the trustees subsequently signed. As a result, we were able to reclaim income tax for Mr K in excess of £3,000.
The reason for the repayment which Mr K was able to obtain was due to the fact that Trustees currently pay income tax at the rate of 50%. If an individual is a basic rate taxpayer or indeed is a non taxpayer, a beneficiary will often be able to reclaim part or all of the income tax which the Trustees have previously suffered.
Capital Gains Tax, Executors and the estate beneficiaries
The Executors of UK Deceased estates will be required to pay Capital Gains Tax (CGT) on gains realised on the sale of assets during the administration period of an estate, over and above their annual exemption for CGT purposes. This exemption will be the same as an individual (£10,600 - 2011/2012) during the year of death and for two years thereafter. The Executors will pay CGT at the rate of 28%.
Mrs Y contacted us as she was dealing with the administration period for her late Uncle’s estate and was concerned that some investments in the estate had increased significantly in value since her Uncle’s death. She initially wanted us to deal with the Executor’s tax returns.
Upon further enquiries we discovered that there were three residuary beneficiaries of the estate and they were in fact all basic rate tax payers. We therefore prepared a Memorandum of Appropriation thus transferring the investments to the beneficiaries in specie before they were sold. As a result of this, there were not one but three annual exemptions available and the small resulting gain assessable on each beneficiary was taxable at the lower individual “basic rate” CGT rate of 18%.
We liaised with H M Revenue & Customs regarding the administration period of the estate and also prepared personal tax returns for the three beneficiaries which resulted in a CGT saving in excess of £5,000.