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Dividend income from Estate distributed to a trust

Dividend income from an Estate distributed to a discretionary trust: income tax credit

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The deceased left the residue of his large estate to a discretionary trust.  The estate took quite a few years to sort out and received interest and dividend income.  The dividends were shown on the estate tax return and were taxed at 7.5%.

In 2017/18 the dividend income from the estate was distributed to the discretionary trust.  The estate has provided an R185 for the trust showing the 7.5% tax credit.

Discretionary trusts tax dividends at 38.1%.  I am trying to work out how to show the tax credit for the 7.5% that has already been paid on the income. 

Does anyone know how to input the income on the trust tax return so as to obtain the benefit of the tax credit?  Alternatively is there another way that this income should be taxed or declared?  I have searched for technical information but I have not found  the answer.

Thank you for any help that you able to offer.

Best wishes for your January busy time.

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23rd Jan 2019 14:58

I suspect the answer is that the income of the administration period is not taxable on the discretionary trustees. If the relevant assets have been appointed to the trust during the administration period the dividends arising after that date would be taxable on the trustees and not on the executors. If the dividends were paid to the executors before the assets had been appointed to the trust, they would be taxable on the executors but not on the trustees. If the trust had commenced on cessation of the administration period (i.e. with no formal appointment of assets), any income arising after that point would not have been taxable on the executors but would have been taxable on the trustees. See here re when the trust commences: https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-...

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23rd Jan 2019 14:08

….and see s483 ITA 2007.

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23rd Jan 2019 15:08

Thank you for your replies.

s483 confirms that the tax credit is available which is good news.
Now how to get the credit into the trust tax return? Comments on the Trust Discussion Forum say that the Trust tax Return doesn't have a suitable box to show the tax credit. One suggestion is to put the credit in box 17.4 which does result in the right tax liability.

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