Trust tax returns:
Trustees are responsible for managing the assets of a trust and ensuring that the trust is administered in accordance with both the trust deed and the relevant tax rules.
One of the key responsibilities trustees may face is dealing with trust tax returns. Where a trust receives income or realises capital gains, HMRC may require the trustees to report this through the Self Assessment system.
Understanding when trust tax returns are required can help trustees ensure that the trust’s tax affairs are handled correctly.
When a trust may need to file a tax return
Not all trusts are required to submit tax returns. However, trustees may need to complete a Self Assessment tax return for the trust where the trust:
receives income from investments or property
realises capital gains from the disposal of trust assets
has tax liabilities to report to HMRC
If HMRC expects a return to be filed, the trustees will normally be notified through the Self Assessment system.
Income received by the trust
Many trusts generate income through assets held within the trust.
Common examples include:
interest from bank accounts
dividends from investment portfolios
rental income from property
Where this income arises, trustees may need to report it to HMRC and account for any tax due.
Trustees should maintain accurate records of all income received by the trust during the tax year.
Capital Gains Tax within trusts
Trusts may also be subject to Capital Gains Tax (CGT) when assets are sold.
Examples may include:
selling property held by the trust
disposing of shares or investment funds
transferring assets out of the trust
Where a gain arises, trustees may need to report the disposal within the trust’s tax return.
Trusts are generally entitled to a Capital Gains Tax annual allowance, although this allowance is typically lower than the allowance available to individuals.
Providing information to beneficiaries
Where trustees distribute income to beneficiaries, the beneficiaries may need information about the income they have received.
This information helps beneficiaries report the income correctly if they are required to include it on their own tax returns.
Trustees should therefore maintain clear records of:
income received by the trust
tax paid by the trust
distributions made to beneficiaries
Deadlines for trust tax returns
Where a trust is required to submit a Self Assessment tax return, the same deadlines that apply to individuals generally apply to trusts.
Trustees must ensure that returns are submitted on time and that any tax due is paid by the relevant deadlines.
Failing to submit returns or pay tax on time may lead to penalties or interest from HMRC.
Record keeping for trustees
Good record keeping is essential when administering a trust.
Trustees should keep records of:
income received by the trust
expenses incurred
asset valuations
capital gains realised
tax returns submitted
These records help ensure that the trust’s tax position can be demonstrated if HMRC raises queries in the future.
Understanding wider trust tax obligations
Trust tax returns are only one aspect of the tax framework that may apply to trusts.
Trustees may also need to consider:
inheritance tax charges such as ten-year anniversary charges
exit charges when assets leave the trust
reporting obligations under the Trust Registration Service
When professional advice may help
Trustees are responsible for ensuring that the trust’s tax obligations are met.
Advice may be helpful where:
the trust receives significant income
the trust holds property or complex investments
capital gains arise on the sale of trust assets
trustees are unsure whether a tax return is required
Obtaining advice can help ensure that trust tax returns are prepared correctly and submitted on time.
How we can help
We regularly assist trustees with the tax obligations that arise during the administration of trusts.
This may include:
preparing trust tax returns
advising on trust income and capital gains
reviewing trust tax positions
dealing with HMRC correspondence
If you are acting as a trustee and would like guidance on the tax position of a trust, we would be happy to discuss your situation.
