Hi
We have recently taken on a new trust client and are unsure if matters have been dealt with correctly in the past. Query is rather long but felt it better to give as much background as possible.
The history to date is one 10 year charge in December 2013 (paperwork completed July 2014) plus one exit charge on oldest beneficiary, A, reaching 25yrs in September 2017– in both cases income received by trust over the years has been treated as accumulated in the IHT forms and therefore included in capital value for IHT purposes. No formal decision has been taken by trustees at any point to accumulate income (waiting for the trust deed to check wording to ensure no requirement to accumulate if not distributed).
No distributions made in any year (capital or income) except the capital distribution of half share of the cash and shares on beneficiary A becoming entitled absolutely to a half share in 2017.
Income over the years has been dividend income (although shareholding not produced any dividends for a number of years recently) and interest on solicitor’s client account and once transferred, on a bank account.
Trust has a substantial tax pool brought forward.
The second and final beneficiary, B, will reach 25 in September 2019 so there will be cap distribution of the remainder of the shares and bank balance at that point.
I want to make use of the tax pool before the capital distribution so that the benefit of it is not lost in September. My questions are:
- Can we look back through life of trust, calculate total income received and distribute this with the full tax pool credit (will probably do one distribution either side of 5/4/19) or is the final beneficiary, B, only entitled to half the income and we are capped at that level? And is it restricted further by the fact that for IHT purposes, the income has been accumulated up to 2017?
- If capped at half, has the final distribution to A, been done incorrectly and should this be amended so that part of the distribution that went to A is part income and part capital (was in 17/18 so can amend TRs)? Would the tax credit on any income distribution be at the trust rate, as suffered by the trust, or because paid after 25th birthday, restricted to basic rate?
- Does the fact that the income has been capitalised for IHT purposes affect the amount that can be distributed as income now? I believe from HMRC, that we can amend the 2017 exit charge IHT form by submitting a new one to show that the income since 2013 has not been accumulated. Is this correct and can we also revise the 10 year charge paperwork as arose prior to the rule change in 2014 re accumulating income for 10 year charges or are we out of time on this?
Thank you
Juliet Field
BRC Accountants LLP