Income from a unit trust

katejo

I am pretty sure that I have nothing to declare. I have looked at  Do you need to pay tax on any of the following? - Check if you need to send a Self Assessment tax return - GOV.UK and can answer No to all questions except possibly no. 7 which mentions income from a trust. Does this include interest paid on a unit trust investment (which feeds annually into a stocks and shares ISA)? My total interest for the year is above the £1000 allowed but well below the £10000 limit.  Thanks

tetrarch

You say:

"Does this include interest paid on a unit trust investment (which feeds annually into a stocks and shares ISA"

So the unit trust itself is OUTSIDE of an ISA, but the resulting income is paid into an ISA. Is there amy reason the unit trust itself cannot be transferred into an ISA gradually?

Regards

Tet

HappyHarry

A unit trust is different from a trust in that HMRC question. 

A unit trust is an investment, a trust is a legal arrangement where one party holds assets for the benefit of another. 

If you are the owner of the Unit Trust then can answer no to HMRC’s question.

katejo

tetrarch said:

You say:

"Does this include interest paid on a unit trust investment (which feeds annually into a stocks and shares ISA"

So the unit trust itself is OUTSIDE of an ISA, but the resulting income is paid into an ISA. Is there amy reason the unit trust itself cannot be transferred into an ISA gradually?

Regards

Tet

Yes I am doing that but I am limited to the £20K annual allowance. My unit trust feeds into the ISA each year.

katejo

HappyHarry said:

A unit trust is different from a trust in that HMRC question. 

A unit trust is an investment, a trust is a legal arrangement where one party holds assets for the benefit of another. 

If you are the owner of the Unit Trust then can answer no to HMRC’s question.

Thanks. That's what I thought but I wasn't sure whether details of interest on the unit trust were passed on to HMRC in the way that my building society interest is (so they can adjust my tax code in April if required. 

poseidon1

HappyHarry said:

A unit trust is different from a trust in that HMRC question. 

A unit trust is an investment, a trust is a legal arrangement where one party holds assets for the benefit of another. 

If you are the owner of the Unit Trust then can answer no to HMRC’s question.

Seems HMRC need to clarify that part of the questionnaire. 

One wonders how many other people like katejo maybe interpreting 'trust' as meaning commercial unit trust investments  rather than private family trust structures, and completing SA returns unnecessarily.

tetrarch

Income from Unit Trusts can be classed as either interest or dividend, so make sure you complete the correct part of the tax return

From here:   https://techzone.abrdn.com/anon/public/investment/Guide-Taxation-of-Collectives

I got this:

"Tax on income

Investors may receive income from their investment in the form of interest or dividends. This will depend upon the mix of the underlying assets within the fund and will determine how income is taxed.

• Where the market value of the fund is made up of more than 60% of cash or fixed interest securities such as gilts or corporate bonds, the fund will be classed as a non-equity fund and income is treated as interest.
  
  Non and basic rate tax payers may be able to receive up to £6,000 (£5,000 starting rate for savings and £1,000 personal savings allowance) of savings income taxed at 0%. Higher rate tax payers can receive £500 (reduced personal savings allowance) of savings income taxed at 0%. But there’s no personal savings allowance for additional rate tax payers. Interest is then taxed at 20%, 40% and 45% (basic, higher, additional rate taxpayers).
  
  
• Where the fund's market value derives from 60% or less in cash or fixed interest, the fund will be classed as an equity fund and income will be treated as a dividend distribution.  
  
  The first £500 of dividend income is tax free (£1,000 2023/24) as it's covered by the dividend allowance. Dividend income  is  taxed at 8.75%, 33.75% and 39.35% (basic, higher, additional rate taxpayers) , for amounts in excess of the £1,000 allowance."

I asume that the unit trust is also accreting a CGT liability as well. If you want to retain your exposure to that particular Unit Trust then you might consider selling some of it to crystallise your CGT gain and then use the cash to repurchase the same units within your ISA

Regards

Tet

katejo

poseidon1 said:

HappyHarry said:

A unit trust is different from a trust in that HMRC question. 

A unit trust is an investment, a trust is a legal arrangement where one party holds assets for the benefit of another. 

If you are the owner of the Unit Trust then can answer no to HMRC’s question.

Seems HMRC need to clarify that part of the questionnaire. 

One wonders how many other people like katejo maybe interpreting 'trust' as meaning commercial unit trust investments  rather than private family trust structures, and completing SA returns unnecessarily.

Mine is just an investment. I am not holding assets for the benefit of someone else. I really don't understand the final  statement by @Tetrarch about capital gains tax

tetrarch

katejo said:

poseidon1 said:

HappyHarry said:

A unit trust is different from a trust in that HMRC question. 

A unit trust is an investment, a trust is a legal arrangement where one party holds assets for the benefit of another. 

If you are the owner of the Unit Trust then can answer no to HMRC’s question.

Seems HMRC need to clarify that part of the questionnaire. 

One wonders how many other people like katejo maybe interpreting 'trust' as meaning commercial unit trust investments  rather than private family trust structures, and completing SA returns unnecessarily.

Mine is just an investment. I am not holding assets for the benefit of someone else. I really don't understand the final  statement by @Tetrarch about capital gains tax

It is an asset you own and therefore if it increases in value then you are liable to account for the uplift as a capital gain and these gains are taxable. There are ways to ameliorate your exposure as you do have an annual CGT allowance, but it is non-cumulative and only kicks-in when an asset is liquidated

Regards

Tet