"Charitable Trust Income" & additional peronal allowance.

Mary_Hartnell

I am trying to help an aged relative sort out a self assessment mess.

I am confused by a small payment that does NOT fit on the short form return he was sent.

The payment is from a sort of benevolent fund and in the modern world would be a pension payment.

The annual payment reads Gross 410 Tax 164 Net 246.
In other words somewhere along the line someone has paid 40% tax.
The elderly relative is a pensioner just into that level of income where the pensioner starts getting his additional personal allowance clawed back

So not only has this relatively trivial sum been taxed at 40% it could result in the pensioner being taxed again at a marginal rate of 40 something percent?

So can someone explain how this should be reported and how it effects the tax payable calculation.

Would any of the 40% percent be repayable in any circumstances, were it (say) paid to a pensioner who did not have enough income to mop up their personal allowance?

Mary

PS I have tried contacting the people who sent the payment and the tax help line.
Both clerks blustered, burbled about not being qualified in trust law and told me I needed professional advice.
Get a grip, it would be cheaper to give the payment to charity.

fengirl_2

This sounds like a payment from a discretionary trust. The difference between basic rate and higher rate tax is repayable. Enter it on the slef assessment under other taxed income.

Mary_Hartnell

That is what I thought, but I did not want to put words into your [strike]mouth[/strike] keyboard.

I figured that form SA107 does the business. I was going to add that to the form that HMRC have supplied ? However SA107 asks for the net figure - does the tax man automatically realise that it must be net of 40% tax ?

As the pensioner in question is in the "pensioner's trap" area he won't be reclaiming much as the age related personal allowance (ie tax at 0%) gets reduced by 1 GBP for every 2 GBP over the limit? Is that effectively 20% tax plus 10%?. Knowing our luck it will be 40% tax plus 10%.

fengirl_2

No, you need to include it in other taxed income - the box where you can enter the actual tax deducted - HMRC won't know otherwise. The taxpayer will be due a refund of the difference between 20% and 40% - this has nothing to do with personal allowances (assuming s/he is a basic rate taxpayer).

Mary_Hartnell

I've sent off the SA107.

For the year 07/08 all the forms seem to be switched to reporting net income, just to confuse those trying to understand their tax calculation.

The notes read:
Net amount – after tax taken off
If you are a beneficiary of a discretionary trust, enter in box 1 the amount received from the trustees after they deducted tax. But do not include payments from a trust that is settlor-interested (see the box 2 note below). If you received payments from more than one trust, add them together. The income in box 1 carries a tax credit of 40% – so if you are taxable at 40% there will be no further tax to pay. If you are not, some tax may be repaid to you or will reduce your overall tax bill – we will work this out.

Let the pen pushers get on with it - if they don't like it, let them drag a nonagenarian out of a nursing home and start a prosecution for the crime of having had a stroke in the autumn. It should read well in the local papers.

I could rant on, but I feel a bit sorry for the half trained clerks trying to cope with a tax system that has more than doubled in complexity in the last dozen years.

I will let you know how it all works out.

Mary.