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TonyTax
TonyTax, Tax Consultant
Category: Tax
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I am self employed earning under £10,000 a year.Iam

Resolved Question:

Hello, i am self employed earning under £10,000 a year.Iam a beneficiary of a discretionary trust. My accountant has told me that if i recieve a payment from the trust of £20,000 i will recieve a tax rebate of £16000 giving me a total of £36,000.
My question is, is this correct and will i then have to pay 20% income tax on the £36,000 ?
Regards,
Gareth.
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.

Hi.

Income received by discretionary trusts is taxed at 45% within the trust unless the income is dividends from shares. Look here for more information.

Payments of income that is not dividend income out of the trust will have suffered tax at 45% so your £20,000 net payment will be £36,363.64 gross. The tax you will have suffered will be £16,636.64 (45%).

If your personal allowance of £10,600 is fully used against your salary (I know it's not but bear with me), then you will be liable for 20% tax on £31,785 of the trust income (£6,357.00) and 40% tax on £4,578 (£1,831.20). Your total liability will be £8,188.20 and as you will have suffered £16,636.64, you will be entitled to a tax repayment of £8,448.44.

If your salary is less than £10,000 per annum, then the balance of personal allowances will be used against the trust income, increasing the tax repayment to you.

The first £1,000 of the trust income may only be taxed at 20% which would have a slight effect on the tax repayment.

I hope this helps but let me know if you have any further questions.

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