I act for the trustees of a discretionary settlement. The trustees have significant undistributed and unaccumulated income and each year have made income payments to beneficiaries at their discretion. Such income payments are franked with income from the trustees tax pool (45% at current rates) and depending on the beneficiaries circumstances they are able to reclaim this in whole or in part from HMRC.
This was the position in 2015/2016. However, the trustees also made a payment to a well known charity during the year.
I am seeking to ascertain the reporting requirements and the tax treatment of this.
It would appear that the charitable payment would also need to be included with the other discretionary income payments on the tax return. However, this payment would then be franked with a tax credit of 45% from the trustees’ tax pool?
Is this correct given that a charity can only usually reclaim basic rate tax (which would mean that there may be a loss of tax (i.e. 45% - less basic rate), or can the charity reclaim the full amount of tax in this case.
TFO Tax LLP