Interest in Possession Trust income

taxation of dividends in interest in possession trust

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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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Jane
By Jane Evans
20th Jan 2017 22:12

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.

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By Bobz
22nd Jan 2017 14:10

There is no R185. Client is both beneficiary and trustee, and HMRC wrote to client early on in the trust's existence to tell them that tax returns for the trust were no longer needed as all of the income was for client's personal use.

Client submitted personal tax returns until 6 years ago when told they were no longer needed, unless their circumstances changed. I only contacted HMRC on client's behalf as they received a P800 with incorrect figures on it for 2015-16 stating that they were due a tax refund. I wrote, supplying the correct info, and their response was to tax the trust dividends at 20% and issue a large bill for underpaid tax.

Client knows that they will need to submit tax returns in future due to the change to dividend taxation.

Each time I phone HMRC I am given a different story. Several times they have stated that they've re-calculated and nothing is owed, but still letters keep arriving to say that client hasn't made contact with them and the sum is still owing!

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By maxaca
23rd Jan 2017 08:45

Client should submit a 2015/16 self-assessment tax return ASAP with the trust dividend income in the appropriate boxes

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