Accumulated income from non resident trust that is now resident

(Anita Chisnall) #1

I have a trust that was at one point non resident. The settlor is dead and his adult grandchildren are life tenants and have been for at least 10 years now. There is an old historical undistributed/accumulated income balance from the period prior to the trust becoming UK resident and prior to the beneficiaries attaining their life interests that the trustees wish to distribute. Does anyone know how distribution of this should be treated in he hands of the beneficiary. For instance, should it be treated as a capital distribution and matched with the historical OIG’s and/or S. 87 gains that were recorded at the point the trust came onshore or is the treatment different for this/

Anita Chisnall
Birketts LLP

(Maxine Higgins) #2

My understanding is that when a formerly non-UK resident trust migrates into the UK, the stockpiles of relevant income, OIG and other capital gains continue and operate, until they are exhausted, in the same way they did when the trust was non-UK resident. Obviously nothing will be added to those pools once the trust is within the UK tax net.

Was the undistributed accumulated income capitalised once the life-interests had all been attained? In any event any ‘capital payments’ (including actual and deemed e.g. interest-free loans and/or use of trust assets rent-free) would crystallise those pools in the hands of the relevant beneficiary in the set-off order of relevant income, OIGs then other gains - potentially also with a surcharge applying, depending on the specific circumstances.

Maxine Higgins
Citroen Wells

(Cindy Chaplin) #3

If what you have was originally pooled income, it cannot be converted to capital for tax purposes, even if it has been accumulated.

Cindy Chaplin
Larking Gowen