R185 (trust income) 2005 2006

R185 (trust income) 2005 2006

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I am trustee of a small accumulation & maintenance trust that wishes to make an income distribution.

For 2005 2006 the rate applicable to trusts only applies to income over £500.

THe current R185 for on the Revenue web site seems to be framed for 2004 2005 - and grosses up all income assuming a 40% rate.

I am unsure how to complete the R185.
Advice received from the Inspector over the phone is that, the first £500 of income is entered in the lower half of the form on the basis that no additional tax is payable - with the rest entered in the top half of the form assuming a 40% rate. If this is done I believe an element of the tax pool will never be recovered. Also it seems strange that the Revenue haven't amended the form to cater for this situation. Any thoughts/published guidance on this would be much appreciated.

(If the Inspector is right the issue worsens in 2006/07 wihen the £1,000 limit comes in.)
David Lewis

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By David_Lewis
02nd Apr 2006 11:20

Info from the revenue
I think I've answered my own question - I've finally managed to locate guidance from the revenue web site! which I've pasted in below.

It seems that the person that I spoke to at the Revenue was completely wrong. Although confirmation of this from someone with first hand experience would be much appreciated.


"TSEM3755 - Trust Income and Gains: Beneficiary receives discretionary payment from a resident trust
Trustees of a discretionary trust have the power to decide how to apply the trust income. A discretionary income payment is treated as an amount that is net of tax at the rate applicable to trusts. The beneficiary’s income is the net amount grossed at the rate applicable to trusts. It carries tax credit at that rate. It is available for relief or repayment.

The gross amount is an annual payment. It is a new source of income, usually not identified with the underlying trust income. Cunard’s Trustees v CIR (27 TC 122) supported the view that when the trustees exercised their discretion, a new source of income came into existence........"

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By AnonymousUser
02nd Apr 2006 16:54

That is my understanding
I would expect that in a case where the trust income consistently falls within the £500/£1000 limit and is always paid out in full to the beneficiaries, then the exemption from tax on the trustees at the discretionary rate is something of an illusion. Once any brought forward tax pool is exhausted, the effect of the 40% tax credit on the distributions would be to give rise to an equivalent liability on the trustees.

At least, that's my reading. Happy to be contradicted.

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By David_Lewis
03rd Apr 2006 09:04

Further conversation with revenue
Just spoken to the Revenue quoting the information below. THey have now agreed that their original guidance was wrong!

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