TSEM3766 - Trust income and gains: beneficiaries: beneficiary entitled to trust income - grossing up and credit for trustees' tax example
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 |