NS&I Trust Tax

[JTP1]

Hi, a hyothetical question for something which I may have to deal with. NS&I savings certifcates bought for a Trust, mature, and the trust beneficiaries are given the money. I know no tax is due on any NS&I certificates when they mature but do beneficiaries need to pay tax on what they receive? Thank you

[Kantwebefriends]

Here's my amateur understanding: I hope somebody will come along to correct it if it needs correction.

1. It depends on who the settlor for the trust was.

2. If it was somebody now dead then the income from the certificates is exempt from income tax within the trust but is liable to income tax in the hands of the beneficiaries to whom it is distributed. (Note that it's the income that matters rather than all the capital realised when the certificate matures.)

3. If the settlor is still alive - e.g. someone who set up the trust using a Deed of Variation - then the distributed income is liable to income tax for that settlor. But since the certificates' income is tax-exempt there will be no income tax to pay.

4. The difference arises because in the latter case trust income keeps its identity when it is distributed e.g. as interest, rent, dividend, etc. In the former case it does not: the beneficiary is taxed on the distribution in the same way irrespective of how the trust received that income.

[mutantpoodle]

surely the question can only be answered if we know which type of trust it is???