TIOPA 2010, s111 relief

Where a beneficiary claims s111 relief, in relation to a discretionary income payment from a UK trust containing an element of income with foreign tax, the trustees’ certified portion of the foreign element is treated as that foreign source, instead of the trust souce. This enables the beneficiary to benefit from double tax relief.

Does the deeming in s111(6) apply just to the beneficiary’s tax treatment of the income or is it extended, to interfere with the normal tax and tax pool taxation of the trust itself in relation to that foreign income?

The TIOPA 2010 s111deeming applies only for the purposes of enabling a beneficiary to obtain foreign tax credit relief by treating income received by the. beneficiary as foreign source (even though it has a UK. source, namely, the UK resident trust. itself).

Malcolm Finney

Thank you Malcolm, that was my understanding (although I’m struggling to find anyone with experience of actually claiming the relief for a client).

What caused my query was a large firm of accountants giving a view that the effect of a beneficiary s111 claim and trustee certification is that the trust is not taxed on the portion of income treated from the beneficiary’s point of view as foreign source. That trust tax view appears to take the s111 deeming too far.

But then on reading Murphy & Anor v Revenue and Customs [2021] Murphy & Anor v Revenue And Customs [2021] EWHC 1914 (Admin) (13 July 2012) (in relation to the earlier but similar versions of s111) at paras 17 - 19, the Judge notes the claim “…relieving the trust of the liability that would otherwise be imposed on it…”

I had read the Murphy case and on a quick re-read I don’t think it changes my view expressed above ie. s111 is only relevant wrt to double tax relief for the beneficiary.

I note your reference to “…relieving the trust of the liability that would otherwise be imposed on it…”; I assume this refers to the trustees’ liability on payments made by them to beneficiaries not their liability “on the portion of income treated from the beneficiary’s point of view as foreign source”.

Malcolm Finney

I have now seen advice from junior Counsel, who suggests that the impact on the trustees of a s111 claim is that the trustees no longer receive foreign tax credit relief on the s111 element claimed by the beneficiaries, with the effect that the trustees’ tax liability increases (as does the tax pool).

This seems to be on the basis that the foreign tax credit relief is noted as being “transferred” from the trustees to recipient in the explanatory notes to s111.

I disagree. I can’t see anything in the wording of s111 itself which impacts the trustees’ tax liability. Instead I read “transferred” in the explanatory notes as simply enabling the beneficiaries to benefit from the foreign tax credit otherwise lost by not falling into the tax pool. Given that the income distribution may be in a later tax year than the year of trust dividend receipt that also better fits the self-assessment framework.