I have a client who has lost his wife and the Will leaves assets to him in a FLIT. He does not want to receive the income at the moment and I am unsure how this would be treated for income tax. I understand if income is paid to him as the life tenant the Trustees pay basic rate tax and then he declares this income on his own tax return and would pay any further tax due.
What happens if the income is retained in the Trust and not paid out? As the Trustees have used their discretion does this then follow discretionary tax rules? Does the same apply for capital payments out to the children does this then move it into the relevant property regime or are these just PETs from the life tenant?
Does it split the trust into a mixed trust?
KMG Independent Ltd