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HMRC internal manual

Trusts, Settlements and Estates Manual

From
HM Revenue & Customs
Updated
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- Non-resident trusts: beneficiary’s chargeability: trust income - interest in possession trust: foreign law - Baker type trust

The beneficiary of a Baker type trust is entitled to his or her share of each source of income arising to the trust, less any amounts to which the beneficiary is not entitled (see TSEM3762).

Credit may be given to the beneficiary for tax deducted at source or paid by the trustees on the income. This includes tax credit relief where tax has been paid by the trustees on trust income in another jurisdiction.

Example

Interest in possession beneficiary has entitlement to all income of non-resident trust

Year 2013-14 - Trust income

UK Property Income = £10,000. Tax paid = £2,000. Net income = £8,000

Trust management expenses = £1,000

Trustees’ position

Gross UK Property Income = £10,000
   
Less tax due - £2,000
Less expenses - £1,000
Net income = £7,000

Beneficiary’s position - TSEM8345

Net UK Property Income = £7,000

Grossed amount (£7,000 x 100 ÷ 80) = £8,750

The beneficiary will need to include the amount of £8,750 property income as his or her income for income tax purposes, and will receive credit for £1,750 tax paid by trustees.