SALF805 - Other issues: assessment, employees, trustees, personal representatives and beneficiaries of estates: self assessment for trustees

Self assessment procedures apply

Section 8A

Trustees are responsible for making a return of any income, profits or gains arising to a trust and for paying any income tax or capital gains tax that is due.

All the ‘process now-check later’ procedures of self assessment apply to trustees. For example, the trustees’ tax return (Section 8A) includes a self assessment which may be subject to correction and enquiry in the normal way and the same fixed time scale for filing the tax return and for the payment of tax apply. Most of these procedures apply automatically to trustees through Section 9 without the need for additional legislation, but special considerations arise where there is more than one liable trustee to a settlement.

It should also be noted that the tax return required from trustees may seek information relevant to the tax liabilities of third parties, for example the settlor and beneficiaries of the trust.

Settlements with more than one liable trustee

Where there is more than one trustee to a settlement they are jointly liable for the tax due on the income or chargeable gains arising. Therefore, in law, any one of the trustees could be held liable for the full amount of any tax due. However, in practice, trustees usually arrange for one of their number, the ‘principal acting trustee’, to deal with HMRC on their behalf.

Under Self assessment any ‘relevant trustee’ may act on behalf of the trustees

Section 107A(1)

Under self assessment any ‘relevant trustee’ is able to fulfil the tax obligations of the trustees as a whole simply by taking the appropriate action. This allows the principal acting trustee to take responsibility for notifying chargeability, for making any tax return, or for dealing with any enquiry.

HMRC may take recovery action against any ‘relevant trustee’

Section 107A(2) and (4)

Conversely, if the principal acting trustee fails to meet any tax obligations HMRC may recover any tax, interest, surcharge or penalties due from any other ‘relevant trustee’.

But no penalty or surcharge may be sought from a person who did not become a ‘relevant trustee’ until after the penalty or surcharge arose

Section 107A(3)

It may be that a person does not become a trustee until after a penalty or surcharge has arisen. In such cases any recovery proceedings against the new trustee will be limited to any tax, or interest on tax, outstanding, but not any surcharge or penalty (or interest on unpaid surcharge or penalty).

Definition of ‘the relevant trustees’

Section 7(9) and 118

In relation to income ‘the relevant trustees’ are persons who are trustees at the time the income arises, or who have become a trustee subsequently.

In relation to chargeable gains ‘the relevant trustees’ are the persons who are trustees in the tax year in which the chargeable gains accrue, or who have become a trustee subsequently.

These allow existing tax obligations to pass to new trustees following any changes in bodies of trustees, for example at the death, resignation or retirement of a trustee.