Distribution of Trust assets (Offshore Bond) - taxation for higher rate tax payers

Hi

I think I just have my brain in a twist over this one, but we have a case where we are weighing up whether to encash segments in an offshore and get the Trustees to pay the 45% tax, or, assign segments out and have the beneficiary pay the tax.

On the face of it, the latter would usually be the most efficient, but they already earn around £100k and the total encashment value is just over £55k - with a total gain of £15,500 - so we are looking at a loss of their Personal Allowance. (there are no other beneficiaries with less income to pay the funds to)

My question is, if the Trustees encash the segments, pay the 45% tax and then distribute the net capital to the beneficiary, does the beneficiary have to declare this money for their income tax assessment? i.e. would they still lose their Personal Allowance?

Comments

  • If they incur a chargeable gain, then yes. Depends what their marginal tax-band is rate. So yes, they could get hammered. Is a policy loan still an option ?

  • Sorry, I misread your post. If the trustees pay tax, it has already been taxed. They can't be double-taxed on it. But you should still look into the option of a policy-loan if it is available. As always, it just defers tax until a more favourable date. It doesn't avoid it.

  • Sam_TSam_T Member

    Hi

    Thanks for your thoughts on that - the loan was not something we had considered.

    Cheers

  • Re Loan. Whilst this an option some care needs to be taken before using this. No doubt there would be an interest charge of some description for the provision of any loan; this then reduces the value of the trust assets for the benefit of other beneficiaries so have the trustees given preferential treatment to one whilst essentially charging the others?
    Not necessarily an issue - all really depends on the trust (which obviously I've not seen) and the intentions of the trustees.

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