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Settlor’s interest

17 March 2015
Issue: 4493 / Categories: Forum & Feedback , Income Tax , Inheritance Tax , Trusts

Is a trust settlor interested, and how should income be declared and taxed?

A director/shareholder of a trading company has transferred his shares into a discretionary trust that was set up for the benefit of his three minor children. A dividend has been paid into the trust but no distributions have been made out of it.

Our dilemma is how we should deal with the tax reporting requirement. It appears that the trust is “settlor interested” by virtue of the minor children composing the class of beneficiaries even though the settlor is specifically excluded from benefiting.

As far as we can ascertain the trust should submit a tax return in the usual way and pay tax on the dividend at the 37.5% rate applicable to trusts.

However it seems that the settlor should also make a return of the dividend income on his own tax return but will have a lower tax liability on that income based on...

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