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HMRC internal manual

Trusts, Settlements and Estates Manual

Capital items that are income for tax purposes: Trust income and gains: - annuitant refunds tax

A beneficiary can receive an annuity free of tax. Instructions are at AP440 onwards.

The beneficiary may repay to the trustees tax relief he receives on the annuity. This normally becomes additional trust income for the year in which the beneficiary makes the refund. The next paragraph explains when this does not apply.

Refund is not income of the trustees

A refund is not the income of the trustees or any trust beneficiary if

  • the annuitant is not resident or not ordinarily resident in the UK. This includes an annuitant singly resident in the Republic of Ireland. and
  • the refund does not relate to personal reliefs. It could, for example, relate to a repayment of tax on foreign stock, or British Government gilts.

Completing a trust return

When completing a Trust and Estate Tax Return, trustees normally include the full refund.

If the annuitant is not resident or not ordinarily resident, the trustees

  • include any part of the refund that relates to personal reliefs
  • exclude the balance of the refund. It is not income of the trustees or the beneficiaries, for any tax purposes.