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Where Taxpayers and Advisers Meet

R185 for life tenant

Brightonian
Posts: 99
Joined: Wed Aug 06, 2008 3:31 pm

R185 for life tenant

Postby Brightonian » Tue Oct 02, 2018 2:05 pm

I have recently taken over an IIP trust, which was previously managed by a trust company. I have all the information needed to prepare the 2017/18 trust tax return. In addition, the life tenant's accountants will need an R185. I have never prepared an R185 for an IIP - just for discretionary trusts. I am aware that all income (less expenses) needs to be paid to the life tenant. My problem is that the trust company has sent me, not only details of the trust income for the trust return but also copies of the income account. This shows a payment made to the life tenant on 10 April 2017. This represents income that would have been paid to the trustees in 2016/17. Should it be included on the R185 for 2017/18, as it was actually paid to her in that year - or will this income already have been included on the 2016/17 R185? I suppose what I am asking is - is the R185 on a 'cash basis'? Similarly, there is a payment to her made after the end of the tax year - most of which relates to income received by the trust before the end of the trust year. Do I just show what she actually received in the tax year or is it more complicated than that? I shall be very grateful for any assistance.

maths
Posts: 7599
Joined: Wed Aug 06, 2008 3:25 pm

Re: R185 for life tenant

Postby maths » Wed Oct 03, 2018 10:32 pm

An interest in possession beneficiary is entitled to the income of the trust as and when the income arises. The trust is not the source of the income.

Accordingly the interest in possession beneficiary is subject to income tax for the tax year the income arises irrespective of as and when the trustees may pay it over.

So for example, bank interest is subject to income tax when credited to the bank account. If such credit is made in tax year 2017/18 but trustees pay it over in 2018/19 the beneficiary is liable to income tax on the interest in 2017/18.

Brightonian
Posts: 99
Joined: Wed Aug 06, 2008 3:31 pm

Re: R185 for life tenant

Postby Brightonian » Thu Oct 04, 2018 6:32 am

Τη

Thank you, Maths. That is very clear indeed and I am very much obliged to you.


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