Trusts Budget 2010
Tax adjustments between settlors and trustees
The Income Tax adjustment mechanism for those who are taxed on the income arising to a trust they have set up (settlor-interested trusts) will be amended from 6 April 2010.
The adjustment mechanism ensures that the same income is not taxed twice and that the settlor neither gains nor suffers a loss.
In relation to the trust income, the settlor is entitled to recover from the trustees the amount of any extra tax he need pay and must pay over to them any repayment received in respect of an allowance or relief above that which he could otherwise have obtained.
Legislation will be introduced as soon as possible in the next Parliament to extend this to all repayments of tax obtained by a settlor in relation to trust income; for example, where he is liable to Income Tax at a lower rate (say 40 per cent) than the trustees (50 per cent from 2010-11).