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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15944
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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It is increasingly common practice for unit trusts to issue

Resolved Question:

It is increasingly common practice for unit trusts to issue accumulation dividends which are not paid in cash but added to the cost of the investment together with the tax credit. Where such shares are held by a trust in which the beneficiary has a life interest but is not entitled to the capital should the non-cash dividend be included in the beneficiary's tax return'
Submitted: 3 years ago.
Category: Tax
Expert:  TonyTax replied 3 years ago.
Hi.

I've dealt with several cases of trusts with holdings of accumulation units where a beneficiary is entitled to the income of the trust for their lifetime but not the capital, sometimes referred to as interest in possession trusts.

If the beneficiary in your case is entitled to the income as it arises, then the accumulated dividends should be included in their individual tax return I'm afraid. notwithstanding the fact that they do not receive it in cash.

There is some commentary on this topic in a Taxation article of 23 July 2014. Unfortunately, I cannot link you to it as the commentary is on the "paid Members" side but the google search is here. Look for the heading "Speculate, accumulate, Taxation".

I hope this clarifies your situation but let me know if you have any further questions.
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Customer: replied 3 years ago.

Many thanks. The printer friendly version reverted to the "paid members" version but searching again gave the full version which I was able to print off on a non printer friendly version. The answer would seem to be for the Trustees to instruct the broker not to invest in accumulation stock!

Expert:  TonyTax replied 3 years ago.
I'm pleased you accessed the article.

Trustees do have a responsibility to do the best for the beneficiaries but it can be difficult when you have one whose only interest is in the income and another whose interest is in the capital. Investment advisers need to know what the aims of the trust are and they can then act accordingly by striking a balance.