Trusts & Similar

Residence of Trustees

If the trust is Irish resident, the trustees are liable to Irish income tax on the worldwide income of the trust. If the trust is not Irish resident, then it is liable for income tax in accordance with the general rules for non-residents.

For capital gains tax, the trustees are considered a body of persons and are deemed Irish resident and ordinarily resident unless all or a majority of the trustees are not Irish resident or ordinarily resident and the general administration of the trust is carried on outside Ireland. General administration of the trust is carried out abroad where the trustees are professionals, and the settlor creating the trust was not Irish domiciled or resident when the assets were transferred to the trust.

For income tax purposes, a trust is resident if the trustees are resident in Ireland. If none of the trustees are resident in Ireland, they are subject to Irish income tax on either source income. If some or a majority, but not all, of the trustees are not resident in Ireland, case law suggests that it is deemed not resident in Ireland.

Bare Nominees

In the case of a bare trustee or nominee, the beneficiaries are absolutely entitled to the assets concerned. They are treated as owners for income capital gains tax purposes.

They will generally be assessed for income and capital gains tax.  The trustees or representatives may also be assessed as such.

Tax & Surcharge

Trustees are not entitled to personal tax credits, allowances, exemptions, or relief from income tax and capital gains tax. They are not considered individuals for income tax or capital gains tax purposes but rather a body of persons. Private principal private residence relief under capital gains tax applies under special terms where the beneficiaries are entitled to occupy the property held within the trust.

Trustees are not entitled to a deduction for annual trust expenses. Trustees are not liable to PRSI or USC in respect of trust income. It also appears they are not liable to the high earners’ restriction.

There is a surcharge on the undistributed income of certain trusts. It applies to income accumulated under a discretionary trust. Income treated as that of the beneficiaries is not subject to the surcharge.

If income has not been distributed within 18 months of the end of the year of assessment, the surcharge applies. It is paid at the standard rate of income tax in addition to income tax.

Payments to Beneficiaries

Transfers of assets and payments from trusts may be income or capital in nature. This does not depend on the nature of the underlying income but on the nature and frequency of the distribution. If the payment out is periodic income , it is more likely to be in the nature of income. If the beneficiary has the right to receive the income as it arises, then it would be deemed income.

If the beneficiary does not have a right to income, such as a contingent interest, and the trustees are permitted to accumulate the income, the trustees are subject to income tax, and the surcharge may apply if the income is not distributed. The beneficiaries are taxed on income actually paid to them or applied for their benefit.

Income tax in the hands of the trustees at the standard rate, which is distributed to the beneficiary, may qualify for a tax credit for the income tax paid by the trustees.

Capital acquisitions tax may also apply in respect of the income payment. A concession allows CAT to be paid on the net income receivable.

When income is paid and mandated directly to beneficiaries as it arises, Revenue will usually  permit it to be treated as the beneficiaries’ income and taxed accordingly.

Settlor Access Anti-Avoidance

The income of the trust is treated as income of the settlor if the settlor is able to obtain the beneficial enjoyment of the income, under anti-avoidance rules. This may be by exercising a power of appointment, exercising a power of revocation, or some other method arising under the terms of the trust.

This does not apply if the power of appointment or revocation may only be exercised with the consent of another person other than the spouse or civil partner of the settlor. Any power exercised by the spouse or civil partner is treated as exercisable by the settlor.

Trust for Children Anti-Avoidance

Trusts under which income is payable for the present or future benefit of minor children of the settlor are subject to anti-avoidance rules and are not treated as the income of the child if the settlor is alive. It applies to any minor children whatsoever, not just children of the settlor.

The settlor remains liable for income tax. Where the income tax is paid by the settlor, it may be recovered from the assets of the settlement. The provisions do not apply in relation to a minor who is permanently incapacitated unless the minor is a child of the settlor.

These rules do not apply if the income is accumulated for the benefit of the child, the settlor and the spouse cannot benefit from the income or capital during the life of the child, the trust cannot be determined or terminated by the act or default of any person, and there is no provision for payment of a penalty by the settlor for failing to comply with the trust instrument.

Where a sum is paid out of the trust for the benefit of a minor, it is treated as the income of the settlor to the extent that it is within the  income from the trust property.