Looking at this posting again and, in particular the quote from the independent analysis, I believe the issue is being confused by the HMRC concession that trustees do not need to submit a tax return if the life tenant discloses the income.
The analysis says that the income is paid and received by the same person. This is not the case in a trust scenario, as the life tenant is paying rent or interest to the trustees and, under the taxing acts, that is the trustees’ income, and they are liable to deduct tax if not already appropriately taxed. The trustees then account to the life tenant for the (net) trust income. So there are 2 tax payers involved, not just the life tenant.
The issue was considered in the conjoined cases of Rogge http://www.bailii.org/cgi-bin/format.cgi?doc=/uk/cases/UKFTT/TC/2012/TC01747.html&query=(title:(+rogge+)) & Ors v Revenue & Customs (Rev 1) [2012] UKFTT 49 (TC) . The decision (accessible via BAILII) contains a clear explanation of the situation.
If the life tenant is allowed use of the property rent free, or given a loan interest free, where this is not permitted under the trust instrument, I believe HMRC may seek to tax the benefit received from such arrangement. In such situations, I understand the tax position has generally been managed by the trustees reserving a commercial rent, or rate of interest, and then waiving receipt on an annual basis.
Paul Saunders