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Trusts & Estate Tax Returns and Accounts
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Trusts are required to submit a self-assessment tax return after the end of each tax year to HM Revenue & Customs (HMRC). This is the responsibility of the trustees and penalties will apply for late submissions, irrespective of whether there is any tax payable.
Trustees must report the trust’s income and gains in a trust and estate tax return.
Types of Trusts:
- Bare Trust: A bare trust is the simplest form where beneficiaries have an immediate and absolute right to both income and capital. Beneficiaries are responsible for declaring any income or capital gains on their personal tax returns.
- Interest In Possession Trust: An interest in possession trust is one where a beneficiary has an absolute right to the income, often referred to as life interest trust. The beneficiary is entitled to capital is known as the remainderman. The trustee will pay the income to the beneficiary, net of trust expenses.
- Discretionary Trust: A discretionary trust provides trustees with the authority to decide on the payment or application of income for beneficiaries who do not hold a specific entitlement to it. Trustees bear the responsibility for income tax and capital gains tax liabilities.
- Income Tax: A trustee is responsible for settling income tax liabilities and filing trust & estate tax returns.
- Capital Gains Tax: Similar to Income tax, trustees are liable to capital gains tax on gains made from the sale or transfer of assets. Trustees will be liable to capital gains tax above the annual exemptions.
- Inheritance Tax: All discretionary trusts fall into the relevant property regime. There will be an inheritance tax charge when assets (money or property) transferred into a discretionary trust when the value exceeds £325,000, every ten-year anniversary, and exit charges when assets are distributed to beneficiaries.
The death of an individual does not absolve tax obligations, and tax liabilities can be categorized into two parts:
a. Tax affairs up to the date of death: On the death of an individual, it is the personal representatives’ responsibility to file a tax return disclosing all income received by the deceased taxpayer from 6 April up to the date of death.
b. Tax affairs during the period of administration: Tax returns may also be required to account for any income or gains made by the estate during the period of administration. This period is between the day after the death and the date on which the residue of the estate has been determined. The personal representative should file trust and estate returns and issue R185 (Estates) to beneficiaries. Beneficiaries use R185 (Estates) to prepare their own tax return to pay or claim a tax repayment.
It is the responsibility of the executor or personal representative to assess the estate, complete the appropriate IHT forms and pay any IHT due. The first step is to value the estate to determine whether IHT is due or not. The personal representative can then decide which forms to file.
It’s a legal requirement in the UK to produce Estate accounts to comply with the duties imposed on personal representative. The purpose of this report is to provide transparency and accountability of all the interested parties namely, beneficiaries, HMRC and Probate Registry. Estate accounts are one of the final stages in the estate administration process. These accounts are a detailed record of all the financial transactions that have occurred during the administration of an estate. It includes information on the assets, liabilities, and administration expenses of the estate, and ultimately shows the final amount that will be distributed among the beneficiaries.
Trustees of Trust have a legal obligation to maintain accurate record of receipts and payments of trust money’s, keeping record of trust history, history of individual assets held within the trust fund and prepare trust accounts to beneficiaries to provide comprehensive and understandable explanation of trust financial position and prepare accurate trust return to report to HMRC.
How can we help?
We at Apex Estate planners, can assist by offering a wide range of services to Personal Representatives, trustees, Settlors and beneficiaries, dealing with all aspects of Trusts and Estate Planning (both in a lifetime and on death). Our services include:
- Preparation of trust and estate Tax Returns.
- Finalising of a deceased’s tax affairs to date of death and filing tax return.
- Preparation of statements of estate income and completion of forms R185 for estate income distributions to beneficiaries, during the administration period and for trust beneficiaries.
- Calculating the inheritance tax position on trusts and estates. The completion of any necessary inheritance tax forms and agreeing with HMRC any liabilities.
- Capital Gains Tax Planning for estate and trust beneficiaries.
- Active estate planning to minimise future inheritance tax liabilities.
- Preparation of trust and estate accounts, including interim accounts, where required.
- Dealing with HM Revenue & Customs enquiries regarding death estates, trust and acting as Agents for trustees.
- Trust registration and trust compliance.
Get in touch with us today.
Disclaimer: The information on the Apex Estate Planners Ltd website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. It is provided without any representations or warranties express or implied
