UK tax position for non UK resident beneficiaries

What is the UK tax position for a non UK resident minor beneficiary receiving UK res trust income

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Hi can anyone help me with some guidance please.

Situation is I have recently taken on a client who has a UK resident discretionary trust (settlor and trustees are UK resident as are some of the UK beneficiaries) with 2 non UK resident minor beneficiaries. (both born in UK now living in Australia but will return eventually) and 2 UK resident minor beneficiaries. Tax returns have been submitted for the trust and it is likely distributions will be made before 5.4.24. My questions are

1. Are the non resident beneficiaries who are resident in Australia entitled to UK personal allowances and if so should they be making claims to HMRC using form R43 for the current tax year and the last 4 years? 

2. Should the minor beneficiaries, both UK resident and non UK resident be declaring the income in the UK to claim back the 45% tax paid and if so how? In the last 4 tax years prior to 2022-23 there was only one distribution made to the grandchildren and this would be covered by each of their personal allowances (if available) but should I now be submitting a back dated R40 for each of them? 

3. Is there any way I can claim back tax on distributions made before 2019-20?

4. What is the non UK resident beneficiaries' position in Australia - do they have to declare the income but claim relief for the 45% tax paid by virtue of the Australian/UK DTA? Who has primary taxing rights?

Any guidance offered to help me untangle this would be appreciated.






Replies (3)

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By richard thomas
23rd Jan 2024 15:28

A few pointers, not advice. Others may say that if you don’t know, and can’t find out from available sources what the answer is you shouldn’t be dealing with it, or should yourself seek specialist advice, esp. about Australian tax.

I am assuming that the client who “has” a discretionary trust “has” it by virtue of being the settlor. “Has” is an awkward word to use in that context, as a discretionary trust is meant to part the settlor from what they have.

Pointer 1: if they are UK nationals, yes (s 56(3)(za) ITA 2007). They are not obliged to make claims for allowances, but may do so if they wish. If there has been only one distribution in the 4 years to April 23, why would they make a claim for the other three years? Is there other income from UK sources on which they could reclaim tax?

Pointer 2: If the person is non-resident I think they use R43 for this, not R40, but it’s not clear and others may know better. Don’t say “backdated” unless you want to stir up suspicion.

Pointer 3: no – s 43 TMA.

Pointer 4: Prima facie taxable – see s 99B Income tax Assessment Act 1936, but I’m no expert (except on their taxation rules for life assurance companies). It is likely that Australia has primary taxing rights and would give credit for UK tax actually suffered and not repaid – see Arts 20 and 22 of the Treaty. If you claim back the 45% tax because of entitlement to personal allowances, Australia would have no UK tax to credit against Australian tax.

Thanks (1)
By Tax Dragon
23rd Jan 2024 18:49

Who are you advising here? You cannot advise the trust, or the beneficiaries of the trust, on the basis of having taken on someone who "has" the trust (whatever that means). Remember your AML.

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Replying to Tax Dragon:
By alisonis
24th Jan 2024 10:09

Should have made it clear I am also engaged for the trust tax work going forward and the client is the lead trustee.

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