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Distribution of capital on wind-up of a private trust or company
Distribution of capital on wind-up to an attributable stakeholder
Distributions of capital to an attributable stakeholder on the wind-up of a private trust or company are not regarded as income for pension purposes (provided the distribution is in proportion to the attribution percentage of the attributable stakeholder). However, the assets of the structure are still attributable in the proportions previously determined.
Distribution of capital on wind-up exceeds attributable stakeholder's percentage
Should the distribution to the attributable stakeholder exceed their attributable amount, the extra payment to the attributable stakeholder is not treated as income. However if there is doubt about whether the private trust or private company is genuinely being wound up then consideration should be given to treating excess distributions as income of the attributable stakeholder.
Distribution of capital on wind-up is less than attributable stakeholder's percentage
If the distribution to the attributable stakeholder is less than the stakeholder's attributable percentage, then gifting has taken place on behalf of that attributable stakeholder. The amount of gifting that will have taken place will be the difference between the attributable stakeholder's assessed entitlement (the total final payout multiplied by the stakeholder's attributable percentage) and the actual distribution received.
Distribution of capital on wind-up to a non-attributable stakeholder
Any capital distributions to a non-attributable stakeholder beneficiary after 1 January 2002 on the wind-up of a company or trust will be held as income for 12 months from the date of receipt. Any such payments will need to be carefully checked, as gifting is likely to have taken place on behalf of attributable stakeholders in making such a payment. Where pre 1 January 2002, a trust is wound-up or a person severs their relationship with a trust, and the person consequently receives a distribution of trust assets, the capital distribution is income.
Distribution of income on wind-up of trust pre 1 January 2002
Where pre 1 January 2002, a trust is wound-up or a person severs their relationship with a trust, and the person consequently receives a distribution of trust assets the income is assessed for 12 months.
Attribution percentage is the percentage of income or assets in the private trust or company that will be taken to be the income and assets of the pensioner for the purpose of the income and assets tests. This only applies if the pensioner (or spouse) is determined to be a controller of the private trust or company.