tax liability

270441

I have money in trust for my  3 grandchildren  who  are now over eighteen years of age. but they will only receive  this when I pass away. Who is responsible for paying tax on any interest over the allowed £1000.00 per annum as they do not know the existence of this trust.

TheGreenFrog

What find of trust (tax forum may be better place for this question, unless it's a bare trust)?  Would also be helpful to know how trust was set up and how this money is currently held.

Keep_pedalling

What sort of trust is important, in bare trust it is the beneficiaries but if that is how it is held then they are entitled to access the money now, and you can’t just keep it secret because they are liable for any tax due on the income.

If it is a descresionary trust then it is the trustees who are responsable and the tax rates will be significantly higher. Is the trust registered with HMRC? 

TheGreenFrog

You may need to double check or seek advice as to exactly what the trust is.  It is possible that you have not as a legal matter established a trust (and for example may just have put some money aside for your grandchildren).  In that case all the income is yours (and the capital will fall within your estate when you die).

Keep_pedalling

270441 said:

The trust was set up for them when they were children. It is all legal and above board and they will receive it when my will is read out.  In the meantime I am more than willing to pay any tax liability that may arise and we are only talking about a very few pounds , My grandchildren are aware of this trust fund but not of how much is involved. The question of tax only affects this year as the interest rates were much higher and will not effect next year as interest are already falling. Should they need the money before then I will not hesitate to let them have it e.g. If they needed a deposit to buy a home or for further education needs.

No one is questioning the legality but neither can anyone answer your question without knowing what sort of trust this is. It actually sounds more like a will trust and if it is the trust is not created until your death.

poseidon1

Keep_pedalling said:

270441 said:

The trust was set up for them when they were children. It is all legal and above board and they will receive it when my will is read out.  In the meantime I am more than willing to pay any tax liability that may arise and we are only talking about a very few pounds , My grandchildren are aware of this trust fund but not of how much is involved. The question of tax only affects this year as the interest rates were much higher and will not effect next year as interest are already falling. Should they need the money before then I will not hesitate to let them have it e.g. If they needed a deposit to buy a home or for further education needs.

No one is questioning the legality but neither can anyone answer your question without knowing what sort of trust this is. It actually sounds more like a will trust and if it is the trust is not created until your death.

Actually it is a very curious arrangement since in the OP's words 'they will receive it when my will is read out'.

That begs the question is it indeed a fully fledged trust set up during his lifetime for the grandchildren. If it is, is it actually registered as an active ongoing trust with HMRC and therefore was supposed to be submitting trust income tax returns ( from inception) unless HMRC has specifically deferred that necessity.  

The OP's opening question as to who is liable to pay tax on interest, suggests the trust has never been registered with HMRC ( his question makes no sense otherwise).

Finally if this does transpire to be a Bare Trust ( ie all the 18 year old beneficiaries are now absolute entitled) then of course each beneficiary is potentially liable to pay income tax on their de facto share.

 However I remain troubled by the OPs insistence that he retains a power of  veto over their 'entitlement' until his death and that prior to this, he has discretionary powers to advance monies to them ( should they so request) for approved purposes such as house purchase or education. Such powers are wholly inconsistent with the tenets of  a ' Bare Trust ' so agree that  far more information required from the OP as to the exact nature of this so called 'legal trust' before any kind of view can be offered on the tax question.

TheGreenFrog

270441 said:

This has only confused me even more. I took out Bonds with my provider In trust for my grandchildren  All communications come to me as trustee. The money no longer forms part of my estate as it  has been  well over 7 years  since it was invested on their behalf.  These bonds were set up by a financial Advisor at the time. Although I am still the trustee the money now belongs to my grandchildren but would require both the children and my signatures to cash them in.  I manage the accounts on their behalf, as in reinvesting them at annual  renewal and have confirmed with my provider that the accounts still have trustee status and that they no longer count as part of my estate, My own children will be my executors and they have been informed that they could take over as trustees when I pass away. I may add we are not talking about large sums of money here or any intent to evade tax. On the contrary I simply want to know if I can pay any tax liability should the interest go over the £1000.00 allowance. 

The answer depends on the type of trust.  Your provider can hopefully tell you.  Anyone can pay the tax liability of another - the real question here is who should be declaring the income.

270441

Thank you I now have it sorted.  These accounts were sett up 30 and 18 years ago so still have the old terms and conditions and I have been told that I can choose to pay any tax on interest over £1000.00 

eskbanker

270441 said:

Thank you I now have it sorted.  These accounts were sett up 30 and 18 years ago so still have the old terms and conditions and I have been told that I can choose to pay any tax on interest over £1000.00 

Tax is rarely a choice as such!  Were you able to ascertain exactly what type of trust it is?