Status of income when appointing out of discretionary trust using s144

I have an estate which is still in administration period. Everything is left into a discretionary trust. We are appointing out within two years using s144. As I understand it S144 just writes back for CGT and IHT. There is some dividend income earned during adminstration.

Can I just do R185s for the beneficiaries receiving the trust assets or do I have to do an R185 for the trust, register the trust, do a return, unregiser the trust and do R185s for the beneficairies. HMRC are sending me backwards and forwards between estates helpline and the trust helpline. The only mention I can find online is a posting on the TDF from April 2016 suggesting it is HMRC practice rather than tax law that a trust return is not necessary.

Any help grately welcomed.

Miriam Spero

#greatly welcomed . oops

There is no automatic writing back for CGT or income tax when using s144 IHTA.

However, if the assets do not vest in the trustees prior to the appointment out, HMRC accept that both capital and income pass direct to the beneficiaries as legatees, so the trust may be ignored for CGT and income tax purposes. The question of whether or not the assets pass to the trustees first may depend on whether the administration has ended and residue has been ascertained prior to the appointment out.

There is no reading back for CGT under IHTA 1984 s144, only IHT on appointments out within the two year period.This effectively means that on any appointment out within the two year period, hold-over relief (TCGA 1992 s 260) is not available.

However, as the estate has not been fully administered, the recipient beneficiary may be treated in practice as taking the property qua legatee (ie taking at probate value) in which case a possible CGT charge is avoided.

Malcolm Finney