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Posted Wed, 20 Mar 2024 10:52:19 GMT by Robert Oakley
A family member who died in 2020 was the beneficial owner of equity in a partnership that was held in trust (The Trust) by a partner (Partner X). Partner X has been in a legal battle with the partnership which has resulted in a settlement to be paid through Partner X receiving partnership income equal to the settlement amount (Settlement X) for the year 2022/2023 (having previously received £0 for that year). The partnership has amended the partnership tax return to show Partner X has received Settlement X. Partner X, as trustee of The Trust, no needs to account for the trust's share of the settlement (Settlement Y) to the estate of the deceased. Partner X is stating that they must declare the full amount (Settlement X) and pay tax on the full amount to HMRC and that they therefore can't pay Settlement Y to the Trust on a gross basis. Question 1: Is this correct, or could Partner X declare their partnership income to be (Settlement X - Settlement Y) on the self assessment, explaining the difference and giving the UTR of the deceased? Question 2: If the above is not possible (or Partner X refuses to do this) and hence makes a payment to the estate on a Net basis (equal to 60% of Settlement Y, assuming 40% paid as tax) then, as Trustee, are they required to provide proof that the income paid to the estate (from the trust) is "tax paid" and the exact amount of tax paid (i.e. via an R185)? Once the income is received into the estate (either Gross or Net of ICT) then the executor will be required to complete a tax return for 2022/2023 on behalf of the estate and declare it as received. Presumably, if received net of ICT (at 40%) then the estate will be able to claim back the excess tax (as the estate would pay a flat rate of 20%). If received gross then the estate will have to pay 20%. Question 3: Once the taxed income is correctly settled into the estate account (i.e. 80% of Settlement Y, where 20% has been paid in tax by the estate), is this then subject to further income tax when distributed to the beneficiaries? I.e. is this still considered income of the beneficiary, so subject to any marginal rate based on their personal income status?
Posted Mon, 25 Mar 2024 14:50:51 GMT by HMRC Admin 5
Hi Robert Oakley

You will need to contact the trust department for this on 0300 123 1072

Thank you
Posted Mon, 25 Mar 2024 15:00:14 GMT by Robert Oakley
It is a bare trust, so the trust team already told me it was a self assessment issue! Typical that one department says it is the other, but you can't speak to both at the same time and have them tell each other that. You just get left without an answer!
Posted Wed, 27 Mar 2024 14:15:39 GMT by HMRC Admin 25
Hi Robert Oakley,
Please refer to guidance here:
Trusts and taxes
Thank you. 

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