Trusts: Who Needs to File a Self Assessment Tax Return?

Why trusts often need a tax return

Many people involved with trusts have to complete a Self Assessment tax return. Earnings from a job are usually taxed through PAYE before you receive them, but most trust income, such as savings interest, dividends and rent, arrives without any tax taken off.

Self Assessment is how HM Revenue and Customs (HMRC) collects tax on that income. Trustees use a different return from an individual Self Assessment return. If HMRC sends a notice requiring a return, you must normally submit it unless HMRC agrees to withdraw the notice. You may also need to tell HMRC about a tax liability even if it has not asked for a return. Late returns attract penalties, and unpaid tax attracts interest.

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Trustees

Trustees are responsible for the trust's own tax affairs. Where a trust has Income Tax or Capital Gains Tax to pay, the trustees will usually need to complete form SA900, the Trust and Estate Tax Return, with any supplementary pages that apply.

From 6 April 2024, many trusts with income of £500 or less in a tax year pay no Income Tax on it. If income exceeds the limit, the whole amount is generally taxable, not just the excess. The limit is reduced where the settlor has created more than one relevant trust, and bare trusts and settlor interested trusts are treated differently. It is not a universal allowance, and it does not cancel a notice to file.

Registration is a separate obligation. Many UK express trusts must register on the Trust Registration Service, including some with no tax to pay, although certain types are excluded and trusts based outside the UK have different triggers. Registering a trust that owes no tax does not by itself mean an annual SA900 is needed. If a registered trust becomes taxable, its registration must be updated, and relevant changes generally have to be reported within 90 days.

• Paper returns are normally due by 31 October after the tax year ends, and online returns by 31 January. A notice issued late can carry a different deadline.
• Tax is normally due by 31 January, and payments on account may also apply.
• To file SA900 online, trustees or their agent must use compatible commercial software.
• Trustees selling UK residential property may need to file a separate UK property return and pay any Capital Gains Tax within 60 days of completion. SA900 does not replace this.
• Keep records of income, gains, expenses and payments to beneficiaries.

Where there is more than one trustee, one is usually nominated to deal with HMRC, but all the trustees remain legally responsible.

Your situation may be slightly different. ask a question below ↓ and our editorial team will reply with our advice.

Beneficiaries

Whether a beneficiary needs to file depends on the type of trust and their wider tax position.

• Discretionary income distributions normally carry a 45% tax credit, shown on form R185 (Trust Income) from the trustees.
• For interest in possession income, the treatment depends on the underlying income and how it is paid. A higher rate taxpayer may owe extra tax.
• Bare trust income is generally taxed directly on the beneficiary, even if it is not paid out, but this does not automatically require a return. Where a parent provided the assets for their unmarried minor child, income above £100 a year is generally taxed on the parent.
• Capital payments are not automatically taxable income, although they can have other tax consequences.

A beneficiary who has paid too much tax and is not otherwise in Self Assessment can usually claim a refund on form R40 instead of filing a full return.

Settlors, estates and getting help

The settlor is the person who put assets into the trust. Where the settlor or their spouse or civil partner can benefit, the income is generally treated as the settlor's and may need to go on their own return. Tax paid by the trustees is credited against the settlor's liability. The trustees may recover from the settlor the tax they paid on that income, and the settlor may have to pass any resulting repayment back to the trustees.

Estates are a separate matter. An estate in administration is not a trust, although personal representatives may also use form SA900. Simpler estates can often be reported to HMRC in another way.

The right approach depends on the trust deed and the circumstances. HMRC's helplines can answer general questions. For more complex trusts, consider a solicitor or tax adviser with trust tax experience, for example a Chartered Tax Adviser or a suitably qualified STEP member.

The Next Step

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