TSEM3766 - Trust income and gains: beneficiary entitled to trust income - grossing up and credit for trustees' tax example
An IIP trust where the Settlements legislation does not apply (see TSEM3765) receives income in 2009-2010: rental income £2,000 and bank interest £800 (basic rate tax of £200 has been deducted at source).
Trustee's position
|
|
Rent |
interest |
|
| gross income |
2,000 |
|
1,000 |
| tax due |
400 |
|
200 |
| net income |
1600 |
|
800 |
The trustee receives credit for the tax deducted at source from the bank interest (£200) so has to pay £220 tax.
Beneficiary's position
| Rent | interest | |||
| net income (as above) | 1600 | 800 | 800 | |
| grossed up | (@ 20%) | 2,000 | (@20%) | 1,000 |
Beneficiary is a higher rate taxpayer
| tax at 40% | 800 | 400 | ||
| less credit | 400 | 200 | ||
| further tax to pay | 400 | 200 |
For an example involving TMEs, see TSEM8485.
