Unfortunately both in my time with HMRC and subsequently I have come across
I also believe there could be a lot more trusts around which have not been
dealt with correctly (not just by a lay person) both from a tax and trust
At one time all trust deeds (and Wills creating trusts) were submitted to
HMRC and a ‘ruling’ was issued by Claims Branch Advisory Division but this
stopped as part of the first waive of of the apparently still continuing
cost cutting measures.
In ‘the good old days’ this type of situation was was usually sorted out
during sensible discussions/correspondence with a specifically identifiable
person within HMRC, involving a comparison between tax paid by the trustees
which was not payable and tax that should have been paid by the
Given current HMRC staffing levels and their apparent technical
ability/understanding I dread to think about what their response will be
Basically it seems to me that
The trustees have overpaid income tax which they might not be able to
I doubt very much that strictly any of the income tax paid by the trustees
can be treated as capital payments to or made on behalf of the beneficiaries
The beneficiaries have not declared income which they should have done and
have a duty to declare this to HMRC.
The hope would be that:
HMRC will agree that no further action is taken in connection with tax
liabilities for earlier years of both the trustees and beneficiaries since
the income tax paid by the trustees is likely to be higher than the income
tax liabilities of the beneficiaries.
Only from 2016/17 onwards (or possibly just the last few years) are the
trust and beneficiaries matters put on a correct footing.
Certainly if I was dealing with this situation this is the approach I would
As regards the undeclared tax liabilities of the beneficiaries capital
gains tax does not come into the equation as it has always been the
Might I suggest that advice is obtained from someone who properly
understand both interpreting trust instruments and trust tax liabilities.
In this respect I would suggest that the terms of the trust deed are
carefully looked at since I have come across trusts that on the face of it
might appear to create interests in possession but because of the wording
used are in fact discretionary trusts for income tax purposes e.g. trusts
involving the use of ‘negative’ discretion
Andrew M Mortimer