Charitable discretionary trust beneficiary tax liability

nevill3

My partner is in receipt of a monthly charitable discretionary trust payment from a former employer, this payment takes her above the personal tax allowance and so I think income tax will be due on the excess.

No tax has been paid for many years due to a low income.

My forays onto the gov.uk & HMRC websites have left me doubting myself.

As far as I can ascertain the regular rules for beneficiaries of discretionary trusts do not apply to a beneficiary of  discretionary charitable trust, where they can normally  reclaim either the difference between the standard 20% rate and the 40%  rate or the full 40% if no other tax liability has arisen that fiscal year.

I spent many hours on the phone with HMRC attempting to get clarification  to be told all I had to do was complete a self assessment for her.

My current thinking is that the charitable discretionary trust payments are declared as income and will be classed and taxed accordingly. This is due the charity not being liable to pay any tax themselves. 

Please be kind in your answers I am just looking for reassurance on this matter.
(The Tax Man scares me)

Bookworm105

trusts pay tax on the money paid to beneficiaries
where the beneficiary is a basic rate taxpayer they can claim back the higher rate tax paid by the trust so that the net position is the beneficiary has incurred basic rate tax on the money received. If the beneficiary is a higher rate taxpayer they can claim back the extra 5%, If the beneficiary is an additional rate taxpayer there is nothing they can claim

if the trust is making a payment tax free, because it holds charitable status, then assuming the beneficiary is not themselves a charity, they cannot expect to receive an income tax free. The beneficiary will be exposed to personal tax at the relevant rate applicable to their circumstances

unless your partner is unable to do so, they should be doing their own tax return, not leaving it to you to sort..

nevill3

Bookworm105 said:

. . .  if the trust is making a payment tax free, because it holds charitable status, then assuming the beneficiary is not themselves a charity, they cannot expect to receive an income tax free. The beneficiary will be exposed to personal tax at the relevant rate applicable to their circumstances

unless your partner is unable to do so, they should be doing their own tax return, not leaving it to you to sort..

Thank you for this clear interpretation of the complex tax rules. Everything I have read merely states the regular beneficiary of a trust position and nowhere specifically mentions charitable trusts. You have confirmed my own interpretation of the current tax rules and I can now rest easy. 

With regards to my partner doing this herself,  unfortunately this is beyond her level of computer skills and the paper forms were too overwhelming. Much easier to let me help (do it for her under her watchful eye)

Thank you once again