The taxation of trusts can be a complex area. We have looked through previous articles at the different types of trusts that can be used. Following is an introduction into the taxation of a trust.

The first step when working out how a trust is to be taxed is to consider the trust instrument to assess what type of trust you are dealing with. Trusts are subject to the same taxes as individuals, that is, income tax, inheritance tax and capital gains tax.

Trust property is held by trustees for the benefit of the beneficiaries. The trust deed will, in most cases, set out who are the trustees and who are the beneficiaries. A trust fund will often consist of the following:

a) Capital this will likely be the original property transferred into the trust, any replacements of that property and any additions

b) Income income earned on the capital held by the trust

The income tax treatment of trusts falls into two categories:

bull; standard rate tax (bare trusts and all interests in possession)

bull; trust rate tax (discretionary and accumulation trusts)

The income of trusts in the first category is initially taxable at the basic rate of 20 per cent, or the dividend rate according to the type of income. Since the beneficiary has a right to the income, it is ultimately taxed at his or her personal rates.

Income that may be accumulated or applied at the trustees discretion is taxed within the trust at the trust rate of 45 per cent (50 per cent before 6 April 2013) or the dividend trust rate. When a beneficiary receives trust income, it carries a tax credit of 55 per cent (previously 50 per cent), regardless of the origin of the income. This may result in a refund for the beneficiary or a tax charge on the trust.

Capital gains tax

Capital gains tax applies to actual disposals of assets within the trust. In addition, certain occasions are deemed disposals for CGT purposes. In both situations, the capital gain is calculated using the standard principles, but the computation of tax may differ with regard to the amount of annual exemption and the rate of tax. Another distinction is the availability of holdover relief.

Annual exemption

The annual exemption will be either:

bull; full annual exemption (bare trusts and trusts for disabled persons)

bull; half annual exemption (all other trusts). The trust annual exemption is shared between all trusts created by the same settlor, subject to a minimum for each trust of one 10th of the full annual exemption.

The current rate of capital gains tax applied to trustees is 28 per cent.

Inheritance tax

The inheritance tax treatment of trusts falls into two broad categories:

bull; beneficial entitlement (bare trusts and qualifying interests in possession)

bull; relevant property (non-qualifying interests in possession and discretionary trusts)



Sir, - I was somewhat surprised to learn that Fintan O'Toole takes his policy views from US talk radio (I would have thought he was more a Guardian reader myself) but that probably explains why his view on foreign direct investment and Ireland's industrial policy is so out of touch with reality ("US taxpayers growing tired of Ireland's one big idea", Opinion amp; Analysis, April 19th).

The taxation of multinationals is based on the source principle. Countries tax the profits from operations located in their countries. Although some of the world's largest companies have operations in Ireland, we can only tax them on the profit they generate from their activities in Ireland. This we do.

The issue being debated in the US at the moment, however, relates to a loophole in the US tax code which allows "deferral" of corporate income taxes, and allows US multinationals to delay certain tax payments until the profits are transferred to US-incorporated entities in their corporate structure. Some companies (not surprisingly) are trying to defer payment for ever. We aren't the problem. The US tax code is. Indeed, the US treasury secretary has written to the European Commission stating that while the US does not collect the tax until repatriation, the US system of deferral "does not give EU member states the legal right to tax this income".

Ireland's 12½ per cent corporation tax rate is a key part of our offering to multinationals but it is not the only reason they come here. We offer access to EU markets, a well-educated and a highly skilled workforce. Winning the war for talent is critical to our future success. That is why my work as Minister of State for Skills, Research and Innovation was focused on making sure we continued to foster and develop Ireland's talent pool through a new innovation strategy and a new skills strategy.

I look forward to hearing Fintan explain the real facts of the matter to Rush Limbaugh or the good folks who listen to the News from Lake Wobegon. - Yours, etc,

DAMIEN ENGLISH TD

Minister of State for Skills,

Research and Innovation,

Leinster House, Dublin 2.



The Tanzania Ports Authority (TPA) has been advised to relax its taxation regime in order to woo clients, amid declining cargo volumes at the Dar es Salaam port, a trend that has been linked to unfriendly tax policies.

Members of the Parliamentary Infrastructure Development Committee said a bad tax regime had forced customers to look for alternative ports for imports and exports.

The committees chairman, Norman Sigalla, said that the volume of transit cargo at the Dar es Salaam port had declined due to value added tax (VAT), driving importers and exporters from neighbouring states to Kenyan, Mozambican and South African ports.

VAT is a key factor scaring away port users as it inflates the costs of clearing the cargo, said Prof Sigalla.

As a result, importers had switched to the ports of Durban in South Africa, Beira in Mozambique and Mombasa in Kenya.

Double taxation



Ukraines Cabinet of Ministers intends to submit to the Verkhovna Rada a bill to abolish the taxation of pensions starting from May 1, 2016, Prime Minister Volodymyr Groysman has said.

We need to introduce two bills to improve welfare of people and I am sure that the parliament will support these decisions. We will abolish the pension taxation from May 1, 2016, Groysman said during the Cabinet meeting on Wednesday.

The second bill will deal with raising social standards from December 1, 2016, not by 6%, as was envisaged previously, but by 10%.