SolvedTSEM3475 | Trust income and gains: vulnerable beneficiaries: claims to special tax treatment: computing the amount of relief: income tax - example where the beneficiary has personal income
From HM Revenue & Customs · Trusts, Settlements and Estates Manual
The details are the same as in TSEM3474 except that the beneficiary also has the following personal income and gains in 2024-2025
Bank interest of £18,000
Dividends of £16,000
A discretionary distribution from the trustees of £4,200 and
Personal chargeable gains (after taper relief, personal losses and the annual exempt amount) of £3,000.
The distribution from the trustees is not taken into account in computing the income tax liability of the vulnerable person for the purposes of calculating TLV1 and TLV2. TLV2 is therefore:
| Income and Capital gain | Non-savings | Savings | Dividend | Capital gains | - |
|---|---|---|---|---|---|
| Income | - | £18,000 | £16,000 | - | - |
| Capital gains | - | - | - | 3,000 | - |
| Less personal allowance (£12,570) | - | £12,570 | - | - | - |
| - | - | £5,430 | £16,000 | - | - |
| Savings chargeable at starting rate on £5000(0%) | - | 0 | - | - | - |
| Basic rate @ nil rate £1000 available | - | £430.00 | £570.00 | - | - |
| Dividend rate ( £15,430 less £500 ) dividend allowance | - | - | £15,430.00 | - | - |
| Taxable income | - | £0.00 | £14,930.00 | - | - |
| Chargeable at lower rate (20%) | - | - | - | - | - |
| Tax chargeable @ dividend rate (8.75%) | - | £0.00 | £1306.37 | £0.00 | £1306.37 |
| Tax chargeable @ capital gains rate (10%) on £3,000 | - | - | - | £300.00 | £300.00 |
| TLV2 | - | - | - | - | £1,606.37 |
TLV1 is:
| Income and Chargeable gains | Non-savings | Savings | Dividend | Capital gains | - |
|---|---|---|---|---|---|
| Income - actual | £0 | £18,000 | £16,000 | - | - |
| Income treated as arising to the beneficiary | £20,000 | £5,000 | £10,000 | - | - |
| - | £20,000 | £23,000 | £26,000 | - | - |
| Chargeable gains | - | - | - | £3,000 | - |
| Less personal allowance | £12,570 | - | - | - | - |
| Taxable income | £7,430 | £23,000 | £26,000 | - | - |
| Chargeable at savings rate (0% reduced amount as higher rate) | - | £500 | - | - | - |
| Chargeable at basic rate (20%) | £7,430 | £22,500 | - | - | - |
| Chargeable at dividends rate @ 0% on £500 | - | - | £0 | - | - |
| Chargeable at dividends rate @8.75% on £6,770 | - | - | £592.37 | - | - |
| Chargeable at dividend rate @33.75% on £18,730 | - | - | £6,321.37 | - | - |
| Tax chargeable | £1,486 | £4,500 | £6,913.74 | - | £12,889.74 |
| Chargeable at capital gain rate (20%) | - | - | - | £3,000 | - |
| Tax chargeable | - | - | - | £600.00 | £600.00 |
| TLV1 | - | - | - | - | £13,499.74 |
| Less TLV2 | - | - | - | - | £1,606.37 |
| VQTI | - | - | - | - | £11,893.37 |
The trustees’ liability is the same as shown in example 1 at TSEM3474 and the deduction that they can claim is TQTI - VQTI (£15,185 - £11,8393.37) = £3,291.63. Their liability is therefore £15,185 - £3291.63 = £11,893.37.
The trustees must also ensure that they have paid enough income tax to cover the deemed deduction of tax on the distribution to the beneficiary (see TSEM3490).
The payment of £4,200 is treated as though a deduction has been made at the trust rate. The gross payment is:
£4,200 x 100/55 = £7,636.36
and applying the trust rate at 45% gives a deemed deduction of £3,436.36.
The tax which can be used to cover this deduction (the ’tax pool’) is income tax chargeable at the trust rate and dividend trust rate.