*NB this was written while on my commute before having seen the comment above about it being a discounted gift trust*
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Thank you so much. The Trust is only being wound up now due to my mother's - the Settlor - death.
I am told that I could pass equal shares onto my two grandchildren, non-taxpayers, in order to mitigate the tax. Thus I woukd be paying on 1/3 rd of the taxable amount of £40,000.
Originally posted by Malcmandy
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If you inherit something you can with the consent of the other beneficiaries vary the will or intestacy to have it (or a portion of it) go to someone else, like grandkids etc.
However if you were already the beneficiary of the bare trust for the last 11 years then the interest income received within it has been yours all along, not simply because someone died. So it seems a bit late to be saying you wanted to give two thirds of your ownership away before the interest income was earned.
Seems there is something here that hasn't been explained about the nature of the ownership, the trust, or how and by whom the interest was earned. But if the person who told you that you could give the income away was a solicitor who has seen the documents they probably know more about it than us. If it was a bloke down the pub then ask the solicitor.
If it is the case that you are no longer going to be treated as the recipient of £40k interest income this tax year and only £13.333k instead, then you won't get as far as the 40% tax bracket. After step 2 assuming £10k of other income for the year, you'd only have £12669 of income above your nil rate band. The first £5k of that amount would be at the starting rate for savings income of 0%, you'd have a £1k personal savings allowance (not £500 as in the earlier example, due to not being a high rate taxpayer) and after deducting the £5k and the £1k from the £12669 you'd only have £6669 that needed to be taxed at 20%.
But that assumes it is all plain vanilla normal interest income arising this year and I don't know how your bare trust has suddenly generated £40k of such income this year that it hadn't generated in previous years (that can be passed to someone else to absolve you of income tax liability on it even though it's yours) so I'll have to bow out.