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bigduckontax
bigduckontax, Accountant
Category: Tax
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Experience:  FCCA FCMA CGMA ACIS
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Our family trust holds an investment bond with prudential.

Customer Question

Our family trust holds an investment bond with prudential.
The bond was purchased by my late father in around 1999 and passed into a nil rate band trust on his death as part of inheritance planning done in around 1999.We have to organise a tax return every 10 years.
The trustees are mum and her two sons, namely myself and my brother. My father died in 8/2000 and so the bond has been in the family trust since around 2000.
My mum currently receives a monthly sum of £300 from the bond. Her other income is around £1000 per month from NHS widows pension (dad was an NHS doctor) as well as around £700 per month state pension.
My question is: is the £300 per month form the bond (so paid out of the trust) liable for income tax?
Many thanks
Francis
Submitted: 10 months ago.
Category: Tax
Expert:  bigduckontax replied 10 months ago.

Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question.

Trusts are a complex area of taxation, but I am of the opinion that this income is taxable in your mother's hands. The Trustees may be, indeed should be, deducting tax from this distribution at the basic rate [20%].

I am so sorry to have to rain on your parade.

Customer: replied 10 months ago.
Hi Kieth, I was expecting to hear that this investment derived income - albeit held in a trust of which she is a beneficiary- would be taxable. After all mums income from her widows pension must be around £12k per annum taking her over the income tax threshold which I believe is somewhere around £10k? Is the state pension of c £700 per month included in the income tax calculation?Is the 20% basic rate you mention which should be deducted from this investment income stream the basic income tax rate?ThanksFrancis
Expert:  bigduckontax replied 10 months ago.

State Pension (SP) is taxable Francis, but paid gross. The recovery is usually achieved by reducing the tax code allocated to her NHS pension to achieve a tax neutral position at the year end.

The exact rate on the investment income might be slightly lower, but that depends upon the type of investment and the range can be large.

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Customer: replied 10 months ago.
Many thanksFrancis
Expert:  bigduckontax replied 10 months ago.

Thank you for your support.

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