§ Mr. Frank FieldTo ask the Chancellor of the Exchequer if any tax will be levied on funds paid into or out of the Hillsborough disaster fund.
§ Mr. Norman LamontThe tax consequences for a disaster fund depend on what form the trustees decide the fund should take.
I understand that the Hillsborough disaster fund has been set up as a non-charitable discretionary trust. Cash donations to the fund are not liable to income tax or capital gains tax. Donations of assets other than cash may give rise to a capital gains tax charge for the donor, but there are provisions permitting deferment of the tax charge. For inheritance tax purposes, the normal rules for discretionary trusts will apply, but in practice it is unlikely that any inheritance tax will actually be payable.
If the donations are invested, the fund will be liable to income tax on any interest or other investment income it receives. Beneficiaries will, however, be given credit for the tax already paid by the fund, so that a beneficiary who is a non-taxpayer can claim repayment of the tax in full. There will be no capital gains tax charge when money is distributed to beneficiaries, and again, although the normal inheritance tax rules apply, it is unlikely that, in practice, any inheritance tax will actually be payable.