R185 / SA107 income etc

[crocker-man]

Hi, I'd be grateful for a little advice on completing the income forms for a simple trust.

The trust only had cash and invested in building societies etc.

I have to declare the income earned in 09/10 on a R185 form, I believe, for the 2 beneficiaries.
The income figures are gross 2724.08 net 2179.26 tax paid 544.82. All income is earned at base rate and thus HMRC will want their share of the above £1000 allowance at 40%, I think.

Therefore tax should be 200 for first 1000 and then 689.63 for the balance.
Thus the total tax due should 889.63 with HMRC requring extra 344.81 for the balance higher rate tax.

Assuming this is all correct I presume that the figures the figures 2179.26 and 544.82 go into BOX 4 ?
Having sent this to HMRC and paid the remaining tax I need to give these figures to the 2 beneficiaries
(50% each).

They use SA107 to declare their shares of the income.
With only 1 figure to put in, you take the number from BOX 4 in R185
and put it in BOX 4 in SA107 (half share, of course).

As easy as that?

I presume then that HMRC will match up at their end the tax paid and
so will know what's what. If any of the beneficiaries are earning either below
40% tax or base rate tax will they we able to claim back any of the tax paid
subject to their allowances etc?

Thanks in advance.

[Lee Young]

What kind of trust is it?

The 40/50% rate will only be relevant for non interest in possession trusts. Tax certificates will only then be needed if income has been paid out. If the beneficiaries are entitled to the income as of right then it will all be taxed at the basic rate, thereby obviating the need to do a tax return.

[crocker-man]

It is a Life Policy Trust. It paid out to 2 beneficiaries on on the deathof the policy holder, designed to pay out tax free
and reduce IHT etc.

The pay out has earned interest until date of wind up of trust - approx 1 year after death, thus the interest to declare.

[Lee Young]

Was it a life interest trust or a discretionary trust?

[crocker-man]

Hi Lee.

Not 100% certain but would presume it is a Life Interest Trust as the trustees have no discretion in who gains the proceeds and interest.

It is known at the PCCS Life Policy Trust. It was a Life Policy in Trust that paid out the cash sum to beneficiaries after death of the
settlor. The trust was registered at HMRC Nottingham, nil returns for previous years filed and tax on income (cash Interest) for 08/09 settled. The trust has now been wound up and we just need to complete figures for R185 and thus SA107.

Hope this makes sense.

Thanks.

[Lee Young]

If its a life interest trust and tax was paid on the interest at source then there will be no further income tax to pay by the trustees. The interest is then divided in half for the purposes of the beneficiaries' tax deduction certificates.

[crocker-man]

Thanks again Lee.

The last query is as to whether the beneficiaries can reclaim the tax if they are below
the relevant tax thresholds?

[Lee Young]

They can.

[crocker-man]

Thanks Lee.

Looking again I think it might be a Discretionary Trust or such because we have paid tax at Trust Rate having had income over £1000 in 08/09 incurring extra tax to be paid. Or am I barking up the wrong tree?

I presume the advice about reclaiming tax stands?

[Lee Young]

Or you mihgt have interpreted it wrongly last time? Prob best to have a trusts adviser look at the paperwork to ensure you are not overpaying tax.