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HMRC internal manual

Trusts, Settlements and Estates Manual

Trust income and gains: trustees - beneficiary receives trust income directly

Sometimes there are instructions or arrangements for income to bypass the trustees of an interest in possession (IIP) trust. If trust income passes directly or indirectly to a beneficiary without going via the trustees, for example income passes through an investment manager to the IIP beneficiary, there is no statutory basis for charging the trustees to income tax in respect of this income, because the trustees are neither entitled to it nor in receipt of it (TSEM3761).

Trustees of interest in possession trusts (IIPs) (TSEM1564) exclude such income from the Trust and Estate Tax Return. 

See TSEM3763 about the beneficiary’s and settlor’s positions.