What are the tax implications when a donor/beneficiary occupies a house owned by a trust i.e. should the trust charge market related rent to the donor's loan account and pay tax on the rental income minus bond interest and other costs?
Important:
This answer is based on tax law for the year ending 28 February 2020.
Answer:
We may not have enough information to provide the guidance required.
You don’t indicate what the agreement between the trustees and the ‘donor’ is.
If the ‘donor’ occupies the house as a beneficiary, the principle at law is that the free use of the asset will only have tax implications for the beneficiary if it involves the vesting of income. In other words, it is only to the extent that the granting of the right to occupy constitutes a vesting of income that there will be tax consequences – both for the beneficiary and the trust.
If the beneficiary didn’t have a right to use the trust, the charging of rental would depend on the agreement between the trustees and the beneficiary.