Statutory Trust for Minor - how to tax

(Claire Spinks) #1

I have a Trust, which was created on the death of an adult, who died intestate leaving a spouse and minor child. This was in 2003 before the changes to the intestacy rules.

We have original advise from the solicitor which stated the surviving spouse had an IIP on 50%, and that the child’s share was on statutory trust until attain the age of 18. It further stated that there was no current entitlement to income (in respect of the child’s share) and that the income would be taxed at RATs.

The solicitor has now advised that whilst the child’s share is indeed contingent on him attaining 18 there was no discretion on this share of the income and that the RAT shouldn’t have applied. Instead, the child should have been taxed on his share of the income.

A vulnerable beneficiary election had been made, but as the Trust income was fully distributed it resulted in tax pool issues.

My confusion lies in how this trust (child’s share only) should be taxed. The only legal document I have seen doesn’t appear to state the Trustees responsibilities or beneficiaries entitlements, but references the Trustees executing part iv of Admin of Estates 1925.

Can anyone shed any light? my inclination is that the original position was right; the child’s shares didn’t have an express right to income and was taxable at RAT’s.

Claire Spinks
British Taxpayers

(Paul Saunders) #2

The child’s share is held upon statutory trusts, which require the child to attain age 18 before it vests. In the meantime, the income is subject to the trustees’ discretion under s.31 Trustee Act 1925 and, therefore, subject to RAT.

Paul Saunders

(andrew.goodman) #3

Surely s.31 TA applies so income is only paid on a discretionary basis and the balance is accumulated. Absent the election, I would have thought RAT applied in the normal way.

Andrew Goodman
Osborne Clarke LLP

(Claire Spinks) #4

Thank you Paul that’s really helpful

Claire Spinks
British Taxpayers

(Claire Spinks) #5

Thanks Andrew, this was the clarification I needed. I have reverted to the solicitor

Claire Spinks
British Taxpayers

(Simon James Northcott) #6

Does not s31(2) Trustee Act 1925 mean that RAT does not apply, as the income is treated under that section as belonging to the child absolutely, in the same way as an absolute unconditional gift?

Simon Northcott

(Paul Saunders) #7

In answer to Simon’s question – No.

s.31(2) TA 1925 opens with the statement: During the infancy of any such person, if his interest so long continues, the trustees shall accumulate all the residue of that income. Such a direction is a trigger for the application of RAT.

This is not cancelled out by the further direction that the minor will be entitled to such accumulations.

Paul Saunders

(Simon James Northcott) #8

I am still not sure. The accumulations in both cases belong absolutely to the infant therefore I should not have thought in either case there was scope for RAT to apply

Simon Northcott