Q&As

A discretionary trust is set up with one adult and two minor beneficiaries. The trustee will currently have to deduct 45% tax on the income before paying the beneficiaries and the adult beneficiary will have to complete a tax return and claim any excess tax they have paid. To avoid the lengthy administration process of completing tax returns, can the trustee create a revocable life interest trust for all three beneficiaries and, if so, does the trust still have to pay tax at 45% or 20%?

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Produced in partnership with Lynne Counsell of Addington Chambers
Published on: 28 February 2022
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Can the trustees of a discretionary trust create a revocable life interest trust for the beneficiaries in order to assist the Completion of income tax returns?

The question

The factual position in this Q&A is that a discretionary trust is set up with one adult and two minor beneficiaries. The trustee will currently have to deduct 45% tax on the income before paying the beneficiaries and the adult Beneficiary will have to complete a tax return and claim any excess tax they have paid.

The question is whether, in order to avoid the lengthy

Lynne Counsell
Lynne Counsell

Barrister, Addington Chambers

Lynne has been in traditional Chancery practice for some thirty years, specialising in probate matters, construction of wills and trusts and also financial services and drafting.

Lynne was for some years counsel for Tower Hamlets, representing them on landlord and tenant cases and counsel for Bedford Building Society representing it on mortgage cases.

Lynne has written or updated over fifty books, including writing the initial volume of Atkin’s Court Forms “Financial Services” and updating Halsbury’s Laws on Injunctions. Lynne was also co-author of two editions of “Insider Trading” and co-editor and one of the writers of “Chancery Practice and Procedure.”

Articles include “Marketing of Investments” for the Law Society Gazette and “The Doctrine of Mutual Wills” for the Trust Quarterly Review. Lynne won one of the few cases on mutual wills in the last fifty years – Charles v Fraser (2010).

Lynne has drafted the standard unit trust for the government of Nigeria, the rules and related documentation for various building societies and clubs, shareholder agreements, company takeovers compliance documentation for certain banks as well as wills and trusts.

Lynne was awarded the 2017 Corporate international Magazine Global Award – “Investment Contracts Barrister of the Year in England”.

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Jurisdiction(s):
United Kingdom
Key definition:
Beneficiary definition
What does Beneficiary mean?

A person who has a interest'>beneficial interest in property under a trust.

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