If you're the settlor of a trust, some or all of the income a trust receives (trustee income) that is not distributed as beneficiary income may be treated as income for calculating Working for Families entitlements and student loan repayment obligations.
Trusts that control companies
If you're the settlor of a trust that controls a company (where the trust and any associated person holds voting interests, such as shares of 50% or more) income earned by that company, less any dividends, can be attributed back to you (treated as your income) for the purposes of calculating your Working for Families and student loans.
Trusts and the main income equalisation scheme
If your company or trust has made a deposit to, or a withdrawal from, a main income equalisation account during the income year you will need to adjust the “company’s total income” or the “trustees income” used in the calculation below to account for it.
Who a settlor is
Generally a settlor is a person who transfers value in cash or kind to the trust for the benefit of the beneficiaries.
You're also a settlor if you both:
- provide financial assistance to a trust (or for the benefit of the trust) with an obligation to pay you back on demand
- you do not ask the trust to pay you back or you defer making the request for repayment.
We can identify attempts to artificially increase the number of settlors by having friends or family become settlors of the trust. The original settlor will be treated as the sole settlor of the trust and shortfall penalties may apply.
When you do not need to tell us about trust income
A trust's income is not attributable (treated as your Working for Families or student loan income) if the:
- trustee of the person's trust is registered as a charitable entity under the Charities Act 2005
- trust is solely for the benefit of a local authority
- trust is a superannuation fund and the interest and dividends of the trust are exempt income of the trustee because it is a funeral trust
- trust requires a court order to be able to make a distribution to a settlor or any member of the settlor's family.
Working out how much trust income to tell us about
From 1 April 2014 changes were made to the calculation of a trust's income if there is a controlled company. There are 2 sets of calculations.
The calculation for the 2015 year onwards applies to Working for Families and student loans.
The calculation for 2014 and previous tax years applies only to Working for Families.
Make sure you use the right one.