I am being asked to reclaim tax paid on trust income. The client is a trustee but she has not prepared the R185 form (done by a solicitor). However, the trust paid tax on income received when the top rate of tax was 50% but the tax on the R185 is shown as 45/55 because when the trust income was distributed the top rate of tax was 45%.
Secondly the solicitor has not claimed any tax relief for his fees in dealing with the tax return, distributing the income etc. which has been deducted from the income before calculating the distribution. This further devalues the tax credit.
Guidance please, should the tax credit be calculated at the rate in force when the trust received the income or when it was paid out to beneficiaries. Can you use the beneficiary's share of income before paying fees to calculate the tax credit if no tax allowance has been claimed for the fees.
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The beneficiary just enters the net figure from the R185 onto their personal return. The tax credit isn't even required for the personal return as it will be calculated automatically at the rate for the year (45%). The trust may have paid tax at a different rate but that is irrelevant to the income beneficiary, it will just have increased the tax pool for the trust.
If your client is the trustee then she does not have to do anything other than pass the R185 to the beneficiary.
What tax relief are you expecting the solicitor to claim? They should have deducted their fees from the income charged to the trust, but only against the proportion of income charged at the trust rates.
It is the tax rate in force at the date of distribution which would go on Form R185.
The tax relief in respect of the solicitor's fees is set off against the income of the trust when calculating the liability of the trust. It reduces the trustees' tax liability and has no relevance to the tax position of the beneficiary other than reducing the amount which is available for distribution.