I have a life interest trust which is a beneficiary of an Estate. Any advice on how to enter the Estate R185 income on the 2025 Trust tax return - income consists of non-savings, savings and dividend income. Or does the life tenant disclose the income and it by-passes the Trust tax return?
Happy to be corrected, but dependent upon the precise circumstances, I think the answer maybe in ITTOIA2005 s. 654 in that a beneficiary with a limited interest in residue (such as a life interest) (ITTOIA2005 s. 650(2)) returns the trust’s share of income on undistributed assets as their own until such time as the administration is completed.
Paul Storrie
Storrie & Company
My reading of the OP is that the Trust has an absolute interest in the estate (presumably residue) and that the trust then holds the assets on life interest.
The problem is one i have come across in the past. The executors receive the income and pay the basic rate of tax and issue an R185. Unlike the SA100 personal return there is no supplementary page for trustees to complete showing income from an estate with tax deducted and the main part of the SA900 does not have the boxes to show the tax already paid.
I don’t remember exactly how I dealt with I but I think I reported the gross income in the return and white spaced the tax paid and then corrected HMRC when they did not take it into account
Nigel, blast from the past! Hope all good with you and G&G! Yes, this is exactly my issue; the trust has an absolute share of reside but nowhere obvious on the return to put the Estate income, which is frustrating. We have decided to declare gross income and made an entry in box 17.4 for tax deducted with a WSN - only issue is it doesn’t take that tax deduction into account for POAs - so will need a call to HMRC about that!
It may be too late now but if the income from the estate had been paid directly to the beneficiary after the deduction of tax then, as per question 9 of the SA900 which says that “trustees of an interest in possession trust … may exclude income which has had tax deducted before you receive it”.
I also have this scenario too & it almost seems the Trust tax return doesn’t seem to cater for this. I too had read that it can be omitted from the Trust tax return as stated by Jeremy. This leads nicely to my next question:
What should I be reporting on the R185 for the life tenant of the Trust if we are not reporting the Estate income on the Trust?
When I was speaking to a colleague, they were very much talking as if said Estate income flows straight through to Life tenant. However as a tax bod I need to ensure I am reporting correctly for tax purposes.
Do I include the R185 E figures on the Trust’s R185 for the Life Tenant even though this has been omitted from the Trust tax return for that year?
I have in these circumstances shown the income as foreign income, with a note in the white space, as you can show a tax credit on there. It seems to be the only way to get the tax credit picked up.
Sara
For discretionary will trusts in this position, the estate guide (https://assets.publishing.service.gov.uk/media/6889cf15048fff613a4d5b35/SA950-2025.pdf), on page 13, states: “If the trustees of a will trust have received any dividend income in the year from the personal representatives distributing the income that arose during the administration period, enter the dividends in box 9.10. This income will be chargeable on the trustees at the dividend trust rate (39.35%). Claim any estate tax credit on the
divdend (sic) income at box 17.4.”
The problem, in my experience, is that HMRC then ignore box 17.4, requiring further follow up and delay. So other reasonable workarounds, especially for a life interest trust, as noted in other comments, may work better.
I had this last year and leeblackshaw is correct you put the dividend tax in 17.4. And yes HMRC ignore it.
I put everything else in the boxes on the trust tax return. So any savings income in the interest boxes showing tax deducted, it is only dividends that cause the tax deducted issues.
Out of curiosity, did you also tick 17.3? The correct answer to the question is NO but maybe you have to tick it in order for them to look at 17.4.
I have just had a letter from HMRC on this very point - I had written to them as they had ignored the figure in box 17.4 on a trust tax return for the estate tax paid. Their reply states:
Please note for future reference that the box 17.4 is not automatically processed and we have to do a manual adjustment. This is not picked up on the online returns so unfortunately it is always best to ring us or write in if you have a figure in box 17.4…because of tax being double paid by the Estate.
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no didn’t tick 17.3 but did have to call hmrc to get them to capture 17.4. But they did it quickly to be fair
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Thanks all for your replies. I have reported income in most appropriate boxes for source of income, and put the dividend tax credit in box 17.4. I have added in an explanation in the additional information section and asked them to make a manual entry for box 17.4 - but will make a diary note to call HMRC following submission to see if they do!
@Mads I have disclosed estate income on the Trust tax return as it was paid to the Trustees and then included it on Trust R185 for the life tenant.
Thanks Sara, that seems to be most sensible & practical way of dealing with it. The tax credit is automatically picked up in the tax calculation. I reported it as UK income on the foreign pages & in the white space explained what is was & why I had reported it as such on the foreign pages.