Thanks for your speedy response which was more detailed than expected.
In a letter of wishes to his will my brother stated income was to be paid annually to the beneficiary but the deceased privately expressed to me that he expected that to be £8000 as interest rates were higher then. As the beneficiary was contemplating a legal challenge to the will I agreed a discretionary payment which I believe my brother would have approved of £8000 plus any tax rebate per annum to avoid this legal action which he has reluctantly approved. He now asks that I set up a formal agreement to cover this improved payment but I have explained this could result in the capital payment also being taxed as it would not then be at the trustees discretion. Do you agree?
Thanks. Had hoped the full sum would not be taxable but imagine there is nothing I can do to change this.
Have sent excellent rating.
Sorry to trouble you further. At present no annual payment has formally been agreed with the beneficiary just proposed by me to ward off litigation not appreciating the payments could be taxed differently. I believe the beneficiary would be prepared to accept income payments (taxed @45%) and additional payments (would these always have to be of differing amounts?) at the trustees discretion if it led to less tax being paid by the Trust. If so would the form R185 need to be issued to the beneficiary for just the income amounts or will the additional discretionary payments need to be included on it?
Finally if the discretionary Trust is set up and later because of high tax implications (HMRC exceptionally taxing as income not part capital) the trustees decide to close it by making the whole trust fund (expected to be £300,000) available to the beneficiary which my brother did not want (but neither would he wish to be paying tax on capital already taxed when he was alive) would the Trust or beneficiary be liable to tax on £300,000?
Many thanks for your continued help.
Thank you and I understand that without access to all the trust information your reply cannot be expected to fully answer my concerns. I will need to take further advice of my solicitor.