Losses and R185 problem


(Cindy Chaplin) #1

We have a trust which owns several properties. The trust has two funds, each with a separate life tenant. Some of the properties are owned by one fund and some by the other.

In 2016/17, one fund has generated a gain, the other a loss. For SA purposes, this is one trust and so the two have been netted off for the purposes of computing the trustees’ Income Tax liability.

Question is, what do we show on the R185s? Do we show the whole of the profit making fund’s income on the beneficiary’s R185 with a white space disclosure that the other fund made a loss? This seems wrong because the R185 will then show a tax credit larger than the tax that has been paid. Or do we show the overall net taxable income on the R185 of the beneficiary of the fund that is in profit? It will match to the net income on the tax return, but actually, the beneficiary is entitled to more than that, so it doesn’t seem right either?!

Help!

Cindy Chaplin
Larking Gowen


(gregsmyerumsby) #2

I asked the same question 5-6 years ago. I can’t find the post (too old?) but I remember no-one came up with a solution.

I favour taking the route which is fairer to the beneficiaries i.e. your first option. I agree with the problem you’ve highlighted, that the tax credit is larger than the tax that has been paid. But taking into account the beneficiary’s tax, HMRC should not lose out, but gets a cash flow advantage.

Gregory Smye-Rumsby
Dixon Wilson


(Maxine Higgins) #3

How has loss been funded in purely practical terms? Is there overdraft in that fund or has it been subsidised by the profitable fund? And if so, will the profitable fund be reimbursed in due course? Does the loss reflect a timing difference that corrects itself and returns to profit (albeit reduced by the previous loss) in the next period?
The answer will influence any practical advice offered. I would not presume to offer any opinion on the legal position.
Maxine Higgins
Citroen Wells


(Cindy Chaplin) #4

The answers to the first and second questions are “yes”; I imagine that the third question is also a “yes”, but we do not have sufficient information at this time to confirm that for definite.

Cindy Chaplin

Larking Gowen


(Cindy Chaplin) #5

The answers to the first and second questions are “yes”; I imagine that the third question is also a “yes”, but we do not have sufficient information at this time to confirm that for definite.