In the context of a UK discretionary trust:
If a stepchild (not legally adopted) is expressly named as a beneficiary in the trust deed, can they receive income distributions and reclaim tax under R185/SA100 in the usual way?
Assuming they dont live in the same household as the settlor, and the trust is not settlor interested, are there any restrictions under ITA 2007 or HMRC guidance that would prevent the stepchild from being treated as a qualifying beneficiary for income tax purposes?
I’ve seen no statutory inclusion of stepchildren under “children” or “issue” unless adopted . Just looking to confirm this and check if anyone has seen HMRC challenge such a reclaim.
Any person named as an eligible beneficiary can receive income from a DT. Tax is deducted at 45% and a refund claimed if the recipient has a nil or smaller liability when the gross income is taxed as his income or part of it.
HMRC can only intervene if the trustees exercise a power which is void e.g. if they distribute to a person who is not an eligible beneficiary under the terms of the trust. If the trustees pay the parent of a minor, relying on a power in the trust to do so, it is still the minor’s income.
If the settlor is a parent income distributed to his minor children is taxed on the settlor. In this instance the legislation does include a stepchild.