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HMRC internal manual

Trusts, Settlements and Estates Manual

Trusts for particular purposes: flat management companies - deduction of tax from interest received

Where a company receives interest on service charges it does so as a trustee because Section 42 LTA 1987 says the income is held on trust for the benefit of the tenants for the time being. The company is therefore receiving income in a representative capacity and it is not within the charge to corporation tax in respect of the income.

Trustees, whether they are individuals or companies are charged to income tax on their income. Up until 2015-16 the law on ‘relevant investments’ for banks and building societies required the deduction of tax from payments of interest to trustees.  The position changed from 2016-17 onwards and tax is no longer deducted at source by the banks and building societies.