IIP & R185

[tommyturtle]

Hi,

I am the sole beneficiary of an IIP trust. Each year the trustees have sent me an R185 to forward to the tax authorities. The figures shown as income are on average 50% greater than what I actually receive. This has meant that, in some years, I have had to pay tax on monies I have not been given. A number of years ago the trustees elected to pay out a regular monthly sum but the total disbursement is nearly always significantly less than the revenue.As I understand it, this type of trust makes the payment of all interest to the beneficiary non-discretionary. A call to HMRC confirmed that the figures on the R185 must correspond to the actual amount of money I have physically received.
Do you have any suggestions as to how I can clarify this situation? What presentation can I reasonably make to the trustees that would resolve these issues?
I should add that I calculated the discrepancy between the income declared on the R185 and the amounts I have received over a number of years. My calculations were not accepted by the trustees. Am I entitled to an explanation? Am I entitled to ask for a cash statement so I can understand why?

Thank you, in advance, for any advice in this matter.

[maths]

Which Box numbers of the R185 are completed when you receive it ?

[tommyturtle]

Boxes 4,5 & 7

[maths]

Given that you are entitled to the trust income as of right (ie trustees have no discretion as to how much to pay) you are subject to tax on the "gross equivalent" of the actual net sum you receive.

EG
You receive 90 units of dividends; you are subject to tax on 100 albeit with an offsetting tax credit (of 10) for tax paid by the trustees.

The income you receive will not be the same as the trustees receive as after the trustees have borne tax on their income their expenses are then deducted therefrom.

[tommyturtle]

Thank you for your reply.

In actual fact the trustees have been exercising discretion in the distribution of income. When they were questioned about the shortfalls they admitted that a balance was being held back and invested at the trustees behest.

Boxes 4, 5, & 6 on R185 show net incomes and taxes paid. As I understand it, the total net incomes in those boxes are what should have been paid to me. This is, after all, the total I submit to HMRC as actual income received which they inform me should correspond to the actual amount I receive. I am assuming here that trustees’ expenses would have already been deducted before completing the R185?

[maths]

If you have an interest in possession in the entire trust property then you are entitled to the trust's income as of right and their is no discretion for the trustees to decide whether to pay it to you or not.

If you have an iip in only part of the trust property then of course your entitlement is to the income arising therefrom only.

You are correct that the net income shown on the R185 is the amount you should receive.

[tommyturtle]

Thanks for that confirmation.

Is that also confirmation that any overheads/expenses related to the management of the trust by the trustees would have been deducted 'from the top' before R185 is issued, leaving the net amounts declared on the form free and clear of any charges from the trust?

[maths]

Correct.