If a discretionary Will trust is brought to an end within two years of death under section 144 of the Inheritance Tax Act 1984 in favour of beneficiaries who receive the trust fund absolutely from the trustees, is it necessary to file income tax returns for the trust, or just for the administration of the estate?
I’d say “it depends”. The treatment of the trust under the inheritance tax act isn’t relevant to the income tax position. I would be asking myself:
- Did the administration period end (that is to say, was it possible to ascertain the amount of the residue) before the trust was terminated?
- Were any assets appointed by the PRs to the trustees of the trust?
If the answer to either question is “yes” then returns are likely to be required for the trust. If both are “no” then the trust had no income tax affairs and won’t require tax returns.
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