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HMRC internal manual

Trusts, Settlements and Estates Manual

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HM Revenue & Customs
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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

  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

    rent   interest
         
net income (as above) 1600   800 800
grossed up (@ 20%) 2,000 (@20%) 1,000

Beneficiary is a higher rate taxpayer

tax at 40% 800   400  
         
less credit 400   200  
further tax to pay 400   200  

For an example involving TMEs, see TSEM8345-TSEM8350.