I am dealing with a RPT where the trustees have an overriding power of appointment. Subject to this, the remaining trust fund is divided into 2 equal shares for 2 grandchildren. The trust deed provides that the trustees ‘may apply the income of his or her Share [ for a given grandchild] and subject to that, shall accumulate the income of the Share during the Accumulation period.’
There is a 21 year accumulation period which ended in 2023. However, s31 TA1925 applies so that the accumulation period is extended to the respective 18th birthdays of the beneficiaries.
I am preparing 2023/24 trust accounts. Beneficiary 1 (B1) turned 18 in July 2023. At that date, due to previous distributions and expenses, his notional share of the income account had fallen into a £500 deficit.
The trust was subsequently terminated in 2024/25, at which point B1’s income account was back in credit.
I am confused about how to show the accumulation on the trust accounts. Where an income account is in deficit at the end of the accumulation period, is there a notional payment of income to capital at that point?
I am inclined to the view that there cannot be - a repayment of a debt is not an ‘accumulation’ as such. If this is correct, then both beneficiaries’ notional income accounts will continue to have equal balances and equal income distributions will be made to the beneficiaries when the trust terminates.
Possibly I am over thinking this, but I am grateful for any views.