Tax Returns & Liability on Retirement as trustee

Surprised today to be challeged on what I thought was common practice. On retirement as a trustee in favour of another, midway in a tax year, it has always been accepted that the new trustee will prepare the ‘in year’ tax return and meet any liability arising. The correct and timely completion of the TRS by the parties would seem to accord to this and provide a clean break.

A tax professional has drawn my attention to s7(9) TMA1970 and the ‘relevant trustee’ position - also expressed on the GOV.UK web.

Interested to learn how other practitioners cover off any latent liability.

Nick Dimmock

Hi Nick

I am not a lawyer but my understanding is that the trustees of a settlement are treated as a single and continuing body of persons, so it is the trustees as a body who need to deal with the tax reporting, not eg Mr Smith who was a trustee but is no longer. (I am not sure what the link to the was meant to show but it just goes to a home page.)

That said, I presume the retiring trustee has taken advice to ensure the appropriate indemnities (not just tax) are in place in the deed of appointment and retirement. I understand from my solicitor former colleagues that chains of indemnity can be quite complex so he may wish to take advice from a trust specialist solicitor if he hasn’t already done so.

Sara Spencer

TMA 1970 s 8A provides for a trustees’ return to be made by “relevant trustees” with respect to any chargeable income arising for a year of assessment. “Relevant trustees” for this purpose are defined in TMA 1970 s7(9) as “the persons who are trustees when the income arises and any persons who subsequently become trustees”.

The retiring trustee thus remains liable for any income tax charges. Presumably an appropriate indemnity would be sought.

Malcolm Finney