TSEM10455 - Non-resident trusts: beneficiary鈥檚 chargeability - trust income: Extra Statutory Concession B18 - example
Non-resident discretionary trust, with a UK resident beneficiary.
Trust income for year 2013-14:
UK Property Income = 拢10,000. Income Tax paid = 拢2,000
UK Bank Interest = 拢20,000. Income Tax deducted = 拢4,000
Foreign Bank Interest = 拢1,000. Income Tax = NIL
Allowable trust management expenses = 拢5,000
Discretionary income payment made to UK resident beneficiary during 2013-14 = 拢4,000
Amount of income on which the trustees are chargeable to income tax, and income tax chargeable:
Income Tax due:
Income chargeable at the standard rate band (TSEM10240)
UK Bank Interest = 拢1,000 @ 20% = 拢200.00
Income chargeable at the trust rate -
UK Bank Interest = 拢19,000
UK Property Income = 拢10,000
Total = 拢29,000
Less trust management expenses* of 拢6,049 @ 20% = 拢1,209.80
Chargeable at trust rate, of 拢22,951 @ 45% = 拢10,327.95
Total tax chargeable = 拢11,737.75
Tax paid = 拢6,000.00
Tax due = 拢5,737.75
* Trust management expenses are set against income to arrive at the amount chargeable to Income Tax at the special trust rates.
The expenses are to be reduced by the proportion of income arising to trustees which is untaxed foreign income (ITA07/S487(2)):
UK Bank Interest = 拢20,000
UK Property Income = 拢10,000
Foreign Bank Interest = 拢1,000 (untaxed)
Total income = 拢31,000
Expenses relating to foreign bank interest:
(拢1,000 脳 拢5,000) 脳 拢31,000= 拢161
Expenses allowed in arriving at income chargeable to Income Tax at the special trust rates are 拢4,839 (拢5,000 - 拢161).
Allowance due = 拢6,049 (拢4,839 grossed up by reference to basic rate on savings income - ITA07/S486(1) - Step 5). (See TSEM8245)听
Amount of available income for each source of income, out of which discretionary income payment treated as made:
UK Bank Interest = 拢20,000
less Trust Management Expenses: (拢6,049 @ 20% = 拢1,209.80)
= 拢13,951
Standard rate band: 拢1,000 @ 20% = 拢200.00
Special trust rate: 拢12,951 @ 45% = 拢5,827.95
Tax charge = 拢7,237.75
Net available UK bank interest = 拢20,000
Less trust management expenses * 拢4,839.
= 拢15,161
Less tax charge = 拢7,237.75
Net = 拢7,923.25
* Although the expenses have been grossed up for purposes of computing tax due, it is the actual amount of expenses paid by trustees which is to be taken into account in arriving at the amount of income available, out of which a payment could be made to beneficiary.
UK Property Income = 拢10,000
Less tax charge = 拢4,500 (拢10,000 @ 45%)
Net available property income = 拢5,500
Foreign Bank Interest = 拢1,000
Less trust management expenses = 拢161
Net available foreign income = 拢839
The total net available income is 拢14,262.25 (拢7,923.25 + 拢5,500 + 拢839)
The discretionary income payment of 拢4,000 is treated as met out of the following income:
Net available
UK Bank Interest: (拢7,923.25 x 拢4,000) 梅 拢14,262.25 = 拢2,222
UK Property Income: (拢5,500 x 拢4,000) 梅 拢14,262.25 = 拢1,543
Foreign Bank Interest: (拢839 x 4,000) 梅 拢14,262.25 = 拢235
Total = 拢4,000
Relief due to beneficiary under ESC B18:
UK Bank Interest: (拢2,222 x 7,237.75) 梅 拢7,923.25 = 拢2,030
UK Property Income: (拢1,543 x 拢4,500) 梅 拢5,500 = 拢1,262
Total tax credit = 拢3,292