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HMRC internal manual

Savings and Investment Manual

Collective investment schemes: unauthorised unit trusts: liability of trustees

Liability of trustees

In any tax year in which deemed payments exceed trust income brought into charge, thetrustees are liable under Part 15 ITA07 to tax on the excess. For this purpose, offshoreincome gains and Accrued Income Scheme charges, may be treated as profits or gains broughtinto charge.

Liability is particularly likely to arise where a trust

  • is entitled to capital allowances, on buildings etc, or
  • receives tax exempt income (for example, income covered by allowances under the Accrued Income Scheme), or
  • is contracting, or
  • terminates.

In any of these circumstances the distributions in a year of assessment may well exceedthe taxable income for that year. For example, when a trust terminates it may distributemore than a full year’s income in the period between 6 April and the date of termination.

In making the comparison between income and deemed payments HMRC will wish to ensure thatthey are looking at the grossed-up amount of the income shown in the accounts as‘available for distribution’ to unit holders or for investment. The distributionfigure may need adjustment depending on the accounting practice adopted.


A unit trust has 2006-07 income of £1100 of which £100 is not chargeable to tax(because of allowances under the Accrued Income Scheme or capital allowances etc), so thatonly £1000 is brought into charge.

If the trustees were to disregard liability under Part 15 ITA07 and calculate the amountavailable as

Income 1100
Less tax (1000 @ 22%) 220
Net 880

This would make the deemed payments £880 net, £1128.21 gross.

There would be liability under Part 15 ITA07 on £28.21 not brought into charge and thetrustees would have to pay this out of capital or future income.

The trustees could arrive at the correct result by making provision for the liabilityunder Part 15 ITA07 on the £100 not brought into charge (£100 @ 22% = £22).

Income 1100
Less tax on income 220
Less ITA07/PT15 tax 22
Available for payment 858

The gross distribution becomes £1100 (£858 grossed up) and the tax thereon £242 whichmatches the trustees’ total liability.

See SAIM6140 for cases where the trustees’ income is lessthan the deemed payments made to unit holders.