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HMRC internal manual

International Manual

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

How to manually calculate relief due under ESC/B18

Although the apportionment of the income will normally be performed using a computer program, if necessary the calculation can be performed manually, as follows:

  1. Deduct any expenses and other obligations, for example Trust Management Expenses (see INTM367920) and annuities (see INTM367770), from the income received by the trustees.
  2. For each income source (after deductions at 1 above) calculate the net amount available for distribution, that is the amount after deduction of tax at the rate applicable to trusts or the dividend trust rate as appropriate.
  3. Calculate the total net distribution made to the discretionary beneficiaries.
  4. Check that the total net distribution made to the discretionary beneficiaries is less than (or equal to) the total net available for distribution. If it is greater than the total net available for distribution, you will need to apply a ‘spreadback’ calculation (see INTM367910).
  5. Allocate the net amount of each source of income arising to the trustees to the beneficiary’s net distribution, by the following formula (each source of income must be treated separately because of the different tax rates to which the trust income is subjected):

(a ÷ b) x c =beneficiary’s share of income source, where

(a ÷ 67.5) x 90 = beneficiary’s gross share of dividends for the purposes of ESC/B18, where

    • a = net income from source
    • b = total income available to distribute
    • c = beneficiary’s net distribution
      1. Calculate the beneficiary’s gross share of each income source by reference to ESC/B18. For UK dividends the calculation for 2004-05 onwards is

    for 1999-2000 to 2003-04 the calculation is

    (a ÷ 75) x 90 = beneficiary’s gross share of dividends for the purposes of ESC/B18, where

      • a = beneficiary’s share of dividends

      For other income (including foreign dividends) the calculation for 2004-05 onwards is

      (a ÷ 60) x 100 = beneficiary’s gross share of dividends for the purposes of ESC/B18, where

        • a = beneficiary’s share of dividends

        for 1999-2000 to 2003-04 the calculation is

        (a ÷ 66) x 100 = beneficiary’s gross share of dividends for the purposes of ESC/B18, where

          • a = beneficiary’s share of income

         

        * 
           
                        
            * a = beneficiary’s share of income
            1. Calculate the tax applying to each income source under ESC/B18 by deducting the net (calculated at 4) from the gross (calculated at 5).
            2. Calculate the repayment due by reference to the relevant treaty articles, and/or UK legislation allowing relief to non-residents. Where repayment is restricted under a double taxation agreement, calculate the amount to restrict as a percentage of the ESC/B18 gross (calculated at 5) and deduct it from the tax (calculated at 6).