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What you need to know after you’ve set up a Trust

Now that the Trust setup has been successfully completed and the Trust has been registered with HMRC, you now need to address the important accompanying accounting and tax compliance obligations

14 Jun 2023

By Jane Thackstone

Trust Accounts

We highly recommend that the trustees maintain basic records of income and expenditure. These records will be used to prepare an annual set of trust accounts, covering the period up to the tax year end on 5th April. The trust accounts will offer an overview of the trust’s financial position, aiding in the distribution of funds to beneficiaries. They will summarize the income, expenses, assets, and liabilities of the trust at the year-end.

Trust Tax Returns

If the trust receives income or realises capital gains, HMRC requires an annual trust tax return to be submitted each year. This return shows the trust’s income, includes any allocable expenses, and records income distributions made to beneficiaries. Distributions are allocated to income or capital based on the provisions outlined in the Trust Deed and have tax implications for both the trust and the beneficiary. Your advisor can let you know of the resulting tax liabilities and the payment deadlines.

Forms R185

When a trust distributes income to a beneficiary, the trustees must provide the beneficiary with a form R185, which records the income and the associated tax credit. Where applicable, this can be prepared in conjunction with the tax return.

Forms R40

In cases where a beneficiary receives an income distribution but does not prepare a tax return (common when minor children are beneficiaries), the tax credit can be reclaimed from HMRC using form R40.

Trust Register

Almost all trusts are now required by HMRC to be registered. The trustees have an obligation to annually declare that the register information is up to date. Your advisors can guide the trustees through the process of registering us as the trust’s agent for this requirement. Subsequently, your advisor will often be able to handle the submissions on behalf of the trust, typically alongside the tax return preparation.

Periodic IHT Returns

Every ten years, a discretionary trust must submit a tax return IHT100 (alongside relevant forms) to HMRC. This return describes the trust’s value as of the specific date and ensures any necessary taxes on that value are paid. Your advisor can assist the trustees by providing reminders of the anniversary and preparing the required calculation and paperwork for this obligation.

Our specialist Trust advisors work with Trustees helping them remain compliant with their filing obligations and providing advice when required.

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