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Tax on Trusts by Tax Experts
Trust Income, CGT & IHT Charges
Experienced trust tax experts manage HMRC, prepare SA900 returns, issue R185s, and resolve queries quickly. With a personalised plan, we map income, gains and IHT, protect reliefs, and keep you compliant. Clear advice, fixed fees, stress-free support
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Trust Income Tax & CGT
Trust income tax and capital gains tax require careful handling at trustee rates. We register and maintain your trust on TRS, prepare SA900, calculate tax on interest, dividends and rental income, and issue R185s so beneficiaries can claim credits correctly. For disposals, we compute CGT, track the annual exempt amount for trusts, match losses, and prepare completion statements. We also plan timings around distributions and rebalancing to manage tax, and draft clear minutes so HMRC sees a consistent story and audit.
Non-Resident Trusts Compliance
Non-resident trusts face UK compliance on UK-source income, UK land gains, and benefits to UK residents. We update TRS, prepare SA900, compute tax on property, interest and dividends, and issue R185s. We review distributions and matching rules, coordinate valuations, and build country schedules for double tax relief. Clear records, timely filings, fewer HMRC queries.
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We are a team of specialist tax advisors who are delivering expert guidance on tax compliance, international tax, HMRC investigations, business structuring, capital gains, inheritance tax, corporation tax and self assessment services.
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Your Questions - Our Answers
We are here to help you with any questions you may have
What taxes apply to UK trusts and who is responsible?
Trusts are taxed differently from individuals, and the rules depend on the type of trust. In the UK, the main taxes for trusts are Income Tax on trust income, Capital Gains Tax on disposals, and Inheritance Tax charges that may apply on entries, ten-year anniversaries, and exits. Trustees also have compliance duties, such as updating the Trust Registration Service and filing annual Self Assessment returns as required.
For income, the rates depend on the trust. Discretionary and accumulation trusts pay tax at the trust rates once the small tax-free limit is exceeded, while interest in possession trusts generally pay at basic rates on most income. Trustees issue an R185 so beneficiaries can see what income was paid and the tax already deducted. Where income is mandated directly to a beneficiary, that person reports it and pays any extra tax.
For capital gains, trustees have a lower annual exempt amount than individuals and pay trustee rates on gains above it. Since late 2024, gains on most assets are charged at twenty-four per cent for trustees, including residential property. Trustees file the SA900 return and the Capital Gains pages when thresholds are met, and must still report earlier UK property disposals under the separate property reporting rules where applicable.
Finally, some trusts fall inside the relevant property regime for Inheritance Tax. These trusts may face proportionate charges of up to a maximum of six per cent at each tenth anniversary and when property is distributed from the trust. Keeping accurate valuations and dates is crucial because the rate depends on the time held and the available nil-rate band. Our Tax Advisors explain options, prepare returns, register and update your trust, and provide a clear schedule of liabilities and deadlines so trustees can make informed decisions with confidence. Early planning prevents costly administrative mistakes.
How is trust income taxed for discretionary and interest in possession trusts?
How trust income is taxed depends on the type of trust. Accumulation or discretionary trusts pay Income Tax at the trust rates after a small tax-free limit shared across a settlor’s similar trusts. Above that level, dividends are charged at the dividend trust rate, and other income is charged at the main trust rate. Trustees are responsible for calculating, paying, and reporting the tax on the SA900 return each year.
Interest in possession trusts is different. The trustees usually pay Income Tax at basic rates on most income and then issue Form R185 to the life tenant showing the gross amounts and tax deducted. If income is mandated to the beneficiary, the trustees do not deduct tax; instead, the beneficiary reports and pays any extra through Self Assessment. Bare trusts are taxed on the beneficiary personally, not at the trust level.
Two practical rules matter. First, most trusts benefit from a modest tax-free amount on income, currently £ 500 in total across a settlor’s accumulation or discretionary trusts, with £ 100 per trust if five or more trusts exist. Second, trustees do not get a dividend allowance, so all dividend-type income above that limit is taxed at the relevant trust rate. After paying, trustees must give beneficiaries accurate R185S so they can claim credit or refunds.
Because HMRC guidance evolves, trustees should check their Trust Registration Service record, coding notices, and any mandate arrangements annually. Our Tax Consultants will reconcile bank, broker, and rental statements, apply the correct rates, complete the SA900 and R185S forms, and document the tax pool for discretionary distributions. We also brief beneficiaries on how to use their R185 figures on SA107 pages, reducing questions, penalties, and delays while aligning everyone’s records. We also review mandates, interest credits, platform statements, and dividend reclassifications each year for accuracy.
How does Capital Gains Tax work for trusts, and what changed recently?
Trustees pay Capital Gains Tax on chargeable gains exceeding the annual exempt amount, which is £1,500 for most trusts, while trusts for disabled people can use the individual allowance. If multiple post 78 settlements exist from the same settlor, the allowance is shared, subject to a minimum per trust if five or more exist.
As of October 30, 2024, trustee gains on most assets will be taxed at 24%, with the same rate for residential property. Prior to this change, non-residential gains were generally taxed at 20%. Proper adjustment is required on Capital Gains pages for this transition, as noted in HMRC’s SA905.
Trustees must complete the SA900 with the Trust and Estate Capital Gains pages when necessary, and they can offset current-year losses against gains, but the allowance cannot be carried forward. UK property and land disposals require separate returns and payments by deadline, even if an SA900 follows.
Maintaining good records, such as contracts and valuations, can reduce tax bills and expedite the process. For trusts owning trading companies or assets used in a beneficiary’s business, checking for applicable reliefs is essential. Our Tax Advisors will assist in calculating gains, timing disposals, ensuring compliance with anti-forestalling rules, and filing accurate computations to facilitate efficient case closure with HMRC.
What returns do trustees file, and what are the key SA900 deadlines?
Trustees must send a Self Assessment Trust and Estate Tax Return if HMRC issues a notice or if the trust has taxable income or gains. A paper SA900 must be filed by October 31, while online submissions are due by January 31. Filing on paper allows HMRC to calculate the tax owed by January. The return includes income pages, Capital Gains pages, and any relevant supplementary pages. R185 statements must be issued to beneficiaries for income distributions, which they use to claim credits or refunds. Separate UK Property returns may be necessary if UK property disposals occurred during the year.
Timely filing avoids penalties, and if tax is due without a notice to file, trustees should notify HMRC. We recommend creating a compliance calendar for the Trust Registration Service, annual returns, R185s, and reviews for potential Inheritance Tax charges. Our Tax Consultants can set up the SA900, reconcile data, and prepare organised schedules. We also offer to prepare paper returns for HMRC’s calculations. We ensure prompt responses to HMRC queries and keep the trustee board informed with summaries of liabilities and key dates.
What is the Trust Registration Service, and when must a trust register?
The Trust Registration Service is HMRC’s online register for most UK and many non-UK express trusts. Trustees must register taxable trusts within ninety days and many non-taxable trusts by earlier deadlines. After registering, they must update details for changes in trustees or beneficiaries and confirm annually that information is current.
Registrable trusts typically include discretionary or interest in possession trusts with bank accounts, investments, or land. Trustees can authorize an agent and download proof of registration. If a trust becomes taxable, update its status promptly and align necessary filings. Missing registration or updates can lead to compliance issues. Keep important documents ready, as conveyancers will require proof of registration when selling property.
Our Tax Advisors can help register new trusts, manage agent authorizations, and maintain records through a secure portal. We audit existing registrations, fix gaps, and provide a single evidence pack that streamlines interactions with banks and lawyers. Trustees should review the register after significant changes and save PDF proofs and annual confirmations, as organized records help speed up transactions and reduce delays.
What are ten-year and exit Inheritance Tax charges for trusts?
Some trusts fall under the relevant property regime for Inheritance Tax, which incurs two types of charges: a periodic charge every ten years based on asset value and an exit charge when assets leave the trust. The maximum rate for periodic charges can reach six percent, depending on the nil-rate band available and how long assets have been held.
Trustees must ensure accurate valuations and keep track of entries, appointments, and previous charges. It’s crucial not to overlook earlier chargeable transfers by the settlor or miss out on available business or agricultural relief, as these can impact calculations.
Trusts outside the relevant property regime may avoid these charges, but it’s important to verify the trust type and any interests in possession. When dealing with UK land, also consider Capital Gains Tax implications and plan for cash flow, as Inheritance Tax is due even if a sale hasn’t completed.
Our Tax Consultants can prepare the necessary computations, value assets, apply reliefs, and draft charge accounts while ensuring timely reminders for anniversaries to optimize tax efficiency. Proper documentation and timely payments help mitigate risks and costs for trustees and beneficiaries. If cash flow is tight, we help schedule payments and coordinate instalments to meet obligations on time.
What do beneficiaries need to report, and how do R185 forms help?
Beneficiaries must have the correct paperwork to report trust income accurately. When trustees distribute income from a discretionary or interest in possession trust, they should provide form R185, detailing the type of income, the gross amount, and the tax paid. Beneficiaries use this information on their SA107 forms to claim credits or refunds and ensure the correct tax rate is applied.
In interest in possession trusts where income is mandated to beneficiaries, tax is generally not deducted by trustees. Beneficiaries report this income and pay any additional tax via Self Assessment. For bare trusts, the beneficiary reports income as if they owned the assets, with no trust-level tax applicable.
Timing and accuracy are crucial; keep copies of distribution minutes, R185s, and supporting statements. For estates in administration, beneficiaries may receive R185 estate forms before the trust is established. Our Tax Advisors assist trustees with R185s and help beneficiaries report figures accurately on their SA107 forms to reclaim any overpaid tax. If distributions include dividends or interest, review your allowances and rates, as beneficiaries may be entitled to a dividend allowance that trustees are not. Always keep copies of correspondence and bank details, and consult us if you need help reviewing figures.
How are non-resident trusts taxed, and what should UK beneficiaries expect?
Non-resident trusts are subject to different taxation rules in the UK. Trustees are taxed on UK-source income and disposals of UK land or property. UK resident beneficiaries may be taxed on benefits received under matching rules, especially if capital payments are linked to foreign income.
Non-resident trusts liable for UK tax must register with the Trust Registration Service within ninety days and file SA900 returns. If the trust owns UK property, trustees must report disposals by specific deadlines and pay due amounts. A UK-resident settlor with settlor-interested features may also be taxed on trust income and should complete Self Assessment.
Care is needed for distributions and loans to UK residents. It’s important to maintain records of income, gains, distributions, and foreign tax paid to ensure proper assessment for UK Foreign Tax Credit Relief. Currency records help prevent double taxation.
We can assist in coordinating reporting among trustees, beneficiaries, and advisers. We prepare necessary returns, draft documents, and help in claims to ensure non-resident trustees and UK beneficiaries navigate UK rules effectively. For example, a non-resident trust with UK rental income pays Income Tax and files an SA900. Upon selling property, it files a UK property return and pays CGT. UK resident beneficiaries receiving capital distributions may be taxed under matching rules. Keep all financial documentation prepared for HMRC.
What records should trustees keep, and what pitfalls cause HMRC problems?
Trust tax issues often arise from missing records, incorrect rates, or late filings. Common errors include forgetting that trustees don’t get a dividend allowance, misapplying the £500 income limit across multiple settlements, and using wrong rates for discretionary income. Additionally, trustees must be aware of the Capital Gains Tax rate change after October 30, 2024, and the £1,500 annual exempt amount.
Proper documentation is crucial. This includes minuting distributions, keeping bank and broker statements, storing R185 and valuation reports, and maintaining a clear timeline. Update the Trust Registration Service with any changes and retain proof. For UK land, be mindful of separate property reporting deadlines.
A brief annual review can prevent many issues. Check residence status, settlor-interested rules, and align trustee and beneficiary returns for consistency with HMRC.
At Tax Accountant, our Tax Advisors provide trust compliance reviews, correcting rates and reconciling income and gains. Organized files and aligned returns allow trustees to focus on decisions rather than administration and avoid penalties. Be cautious with R185s; issuing them incorrectly leads to tax overpayments or underpayments, which can take time to resolve. Annually review mandating arrangements to clarify tax liabilities and share draft schedules with beneficiaries before distribution to avoid confusion and penalties.
How can your Tax Advisors build a compliant, tax-efficient plan for our trust?
Our Tax Advisors make trust taxes easier by creating a personalized plan. We start by looking at the trust deed, participants, and assets. We identify income sources, gains, and Inheritance Tax risks. We check the Trust Registration Service, decide what returns are needed, and set up a timeline that includes the SA900, R185s, and UK property reports.
We prepare a clear SA900, issue R185s, update the TRS, and give trustees a simple summary to share with banks and beneficiaries. If HMRC has questions, we provide them with existing evidence. You can book a call at taxaccountant.co.uk for a fixed-fee proposal and a practical compliance plan. We also offer training for your trustee board on their roles and paperwork.
For urgent cases, our fast-track team ensures quick returns, and we have annual retainers for ongoing support, including reminders and reviews.