TSEM10425 - - Non-resident trusts: beneficiary’s chargeability: trust income - interest in possession trust: foreign law - Baker type trust
The beneficiary of a Baker type trust is entitled to his or her share of each source of income arising to the trust, less any amounts to which the beneficiary is not entitled (see TSEM3762).
Credit may be given to the beneficiary for tax deducted at source or paid by the trustees on the income. This includes tax credit relief where tax has been paid by the trustees on trust income in another jurisdiction.
Example
Interest in possession beneficiary has entitlement to all income of non-resident trust
Year 2013-14 - Trust income
UK Property Income = £10,000. Tax paid = £2,000. Net income = £8,000
Trust management expenses = £1,000
Trustees’ position
| Gross UK Property Income | = £10,000 |
|---|---|
| Less tax due | - £2,000 |
| Less expenses | - £1,000 |
| Net income | = £7,000 |
Beneficiary’s position - TSEM8345
Net UK Property Income = £7,000
Grossed amount (£7,000 x 100 ÷ 80) = £8,750
The beneficiary will need to include the amount of £8,750 property income as his or her income for income tax purposes, and will receive credit for £1,750 tax paid by trustees.