SolvedTSEM3766 | Trust income and gains: beneficiaries: beneficiary entitled to trust income - grossing up and credit for trustees' tax example
From HM Revenue & Customs · Trusts, Settlements and Estates Manual
An interest in possession (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
| Income | 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
| Income | Rent | Tax | Interest | Tax |
|---|---|---|---|---|
| net income (as above) | 1600 | - | 800 | - |
| grossed up | (@ 20%) | 2,000 | (@20%) | 1,000 |
Beneficiary is a higher rate taxpayer
| Tax due | - | - |
|---|---|---|
| tax at 40% | 800 | 400 |
| less credit | 400 | 200 |
| further tax to pay | 400 | 200 |