Taxable Interest on Trust Wind Up

bowlhead99 wrote: »

Ok, both my earlier posts were written before I'd seen you say that.

In that case it's likely that an investment bond product will have been used to pay some ongoing capital out to the settlor along the way (creating the 'discount'), and what you're left with (on top of the capital) that you describe as "interest" on which to pay tax, on is really a chargeable gain on the investment bond. And there's no IHT because she survived the 7 years and her retained interest in it once she died would be considered worthless so nothing is now being inherited, it happened 11 years ago into bare trust.

As it's an investment bond and not just a bit of bank or investment fund interest received, the tax treatment is quite different from a plain boring bit of bank interest. Generally if it was an onshore bond it's considered to be basic rate tax paid with top-slicing relief available to reduce high rate tax where you have capacity within your basic rate band; while with offshore bonds they are fully taxable but still count as 'savings income' so can use the 0% starter rate for savings income and the £500/£1000 personal savings allowance as well as top slicing relief.

Someone else may pop along to help you through it if you're stuck though the advisor/ insurance company whose product it was, or the person dealing with the estate should be able to point you in the right direction. Good luck with it all and it goes without saying, commiserations on the passing of the settlor.