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29 September 2009
Issue: 4225 / Categories: Forum & Feedback , Capital Gains , Income Tax , Inheritance Tax
How do trustees decide whether a payment to beneficiaries represents income or capital?

I’m always puzzled as to how the trustees of any discretionary trust decide on the nature of payments to beneficiaries as either revenue or capital – actually I wonder if in many cases they just don’t!

We have a large family trust where numerous small payments are made fairly frequently to the beneficiaries.

If no decision is taken at the time as to whether the payment is capital or revenue it certainly will have to be by the time the trust tax return is done. If the payments are treated as being revenue but there is an insufficient amount in the tax pool that risks a tax pool charge.

But if the trustees then decide that the excess is capital then there is a risk that the inheritance tax reporting deadline or more importantly the payment dates have been missed.

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