I have a client who receives income from an Interest In Possession Trust.
This income is mainly from dividends, with a small additional amount in interest. The client is a basic rate tax payer.
I have submitted the information to HMRC for 2015-16 tax year, and their calculation shows the following categories for the trust income:
'TSE Trust Non-pay Div Rate' and 'TSE Trust Basic Rate'.
Both of these have been lumped together further down in the calculation, and the total taxed at 20%. As a result, the client has had a hefty tax demand, as the dividends had a 10% tax credit applied originally, and by my reckoning there is no further tax due.
Each time I have spoken with HMRC the person states that they don't know much about IIP trusts, and that someone will ring me back, which they never do.
Can anyone shed some light on what 'TSE Trust Non-pay Div Rate' actually means? I would guess that the dividend income has been incorrectly entered into this category, and that's why the 20% rate has been applied. And any idea of how I can get them to tax the dividend income correctly, and issue me with the correct calculation?
Many thanks
Replies (3)
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If the income is from an IIP then presumably you have a form R185 from the trustees. Dividend income is shown in box 5 on page 2 of the R185.
On the beneficiary's tax return, on the Trust pages, put the dividend income as shown on the R185 into box 5 on page T1.
I haven't had a problem with HMRC recalculating the income to have a 20% tax rate, but nothing is impossible.
I wonder if the trust has put the income in the wrong boxes on its tax return and an HMRC computer is forcing the change onto the beneficiary's tax return.
Client should submit a 2015/16 self-assessment tax return ASAP with the trust dividend income in the appropriate boxes