|Rate applicable to trusts||1,3||45%||45%|
|Dividend income tax rate||1,3||38.1%||38.1%|
|Standard rate band||2||£1,000||£1,000|
|Exempt amount – trust for infant children||4||£100||£100|
|Trust capital gains tax exempt amount for most trustees||5||£6,000||£5,850|
|Rate of tax||20%||20%|
- Trust income within the standard rate band is not taxable at the rate applicable to trusts, but bears the rate of tax appropriate to that type of income – savings income at 20%, dividends at 7.5%.
- Trustees are liable at the rate applicable to trusts and the related dividend rate if they have power to accumulate income or have discretion over whether the income is made available to beneficiaries.
- Income taxed on the settlor of a trust, rather than the trustees is taxed as the settlor’s top slice of income. This normally arises when the settlor has retained an interest in the trust, but also applies where the trust is for the benefit of his infant children. Settlors will be required to pay any refund of tax on deemed trust income back to the trustees.
- Capital invested on behalf of an infant unmarried child is treated as a settlement and the income is taxed on the settlor parent if it exceeds the exempt amount.
- The annual exempt amount is divided by the number of settlements created after 6 June 1978, subject to the minimum amount. There is no annual exempt amount available when the gains are taxable on the settlor under the settlor interested trust provisions.
- Where a trust has vulnerable beneficiaries, including a minor child who has lost a parent, the trustees may claim to reduce their tax liability (income and capital gains tax) to that which would be borne by the beneficiary. This gives the trustees the benefit of the beneficiary’s personal allowances and basic rate band.
- Bare trusts established for the settlor’s children benefit from CGT annual exemption. Income is subject to the £100 limit then taxed on the parent as their top slice of income.
Trustee registration service penalties
There is a requirement to register using the trustee registration service by the due date of 31 January after the end of the tax year in which the trustees pay tax on trust assets or income and also a requirement to notify any change of information by the due date of 31 January after the end of the tax year in which the trustees pay tax on trust assets or income.
HMRC will charge a fixed penalty to reflect the period of delay:
• Registration made up to three months from the due date – £100 penalty
• Registration made three to six months after the due date – £200 penalty
Registration more than 6 months late – either 5% of the tax liability or £300 penalty, whichever is the greater sum.