FAQs - Trustees
Q. What is a 'tax pool'?
A. When trustees of a discretionary or accumulation and maintenance trust pay income to beneficiaries, it carries a tax credit. This is at the rate applicable to trusts. The trustees must ensure that they have paid enough tax to cover the tax credit. Trustees, therefore, need to keep a record of tax payments, known as the 'tax pool'.
The tax pool consists of tax paid by the trustees on income they have received, and tax deducted at source, for example by banks or building societies on interest. It does not include non-payable tax credits, such as the tax credit on dividends. When the trustees pay income to beneficiaries the tax pool is reduced by the tax credit on that income.
If the tax in the tax pool is not enough to cover the tax credit needed for the payment to beneficiaries the trustees must pay the difference in their Self-Assessment tax return for the year.
Example Trustees of a discretionary trust pay £600 income to the beneficiary Vicky. This amount is treated as net after deduction of tax at 40%. So Vicky is treated as receiving £1000 income, from which £400 in tax (40%) has been deducted and Vicky gets a tax credit for this £400. Vicky enters this receipt and the tax credit on her personal return. The opening balance in the tax pool is nil so the trustees must pay tax of £400 to cover this credit. If there were a balance brought forward but that balance was less
than £400 the trustees would have to pay enough tax in the
year to make up the shortfall. |
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