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HMRC internal manual

International Manual

From
HM Revenue & Customs
Updated
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DT applications and claims: Non-resident beneficiaries of UK trusts

Distributions to an absolute beneficiary or to a life tenant

Definitions:

  • Absolute Interest

The beneficiary is entitled to a predetermined share of the trust income and capital

  • Life Interest

The beneficiary is entitled to a predetermined share of the trust income during the beneficiary’s lifetime

In each case the beneficiary is considered to have an interest in possession, that is, the beneficiary has a right to their share of the income (and capital if appropriate).

Distributions from interest in possession trusts

When trustees distribute income to a beneficiary, tax is charged at the rate appropriate to the source of that income. If tax has already been taken at source, no further tax is payable by the trustees.

Allowing relief on distributions from an interest in possession trust under Double Taxation Agreements

Because a beneficiary has a right to their share of the trust income, when we consider relief we treat the income as if it is the beneficiary’s own income, arising directly to them (see tax cases Williams v Singer & others 7TC378 and Archer-Shee v Baker 11TC749). This treatment is usually referred to as ‘looking through’ to the underlying sources of the income paid through the trust.

Relief is therefore given by reference to the articles of the double taxation agreement that deal with the underlying sources, or, in the case of FOTRA gilts and foreign income from which tax has been deducted, by reference to UK legislation that allows relief to non-residents.