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HMRC internal manual

Trusts, Settlements and Estates Manual

Trusts for particular purposes: flat management companies - investment income previously charged to corporation tax

In the past some flat management companies have been permitted to make returns in respect of investment income, arising on service charge funds and sinking funds, as part of their corporation tax returns (see PIM1070) Such treatment is no longer appropriate where trustees are holding funds as trustees under Section 42 LTA 1987. Likewise where Section 42 LTA 1987 does not apply but the terms under which the funds are held creates a trust.

Rents receivable by flat management companies (such as ground rents - other than peppercorn rents) are outside the scope of Section 42 LTA 1987 and remain chargeable as income from property.

Tax Bulletin Issue 37 (October 1998) explained the approach that HM Revenue and Customs has taken for all flat management companies as from 1 April 1998. However, because of the need to issue further guidance in Tax Bulletin Issue 48 (August 2000), no action was usually taken to disturb any year or accounting period for which a corporation tax return had already been made and accepted at that time.

Where a trust return has not previously been made by a flat management company, or a trustee, of investment income arising from a fund within Section 42 LTA 1987 (or from funds otherwise specifically held on trust), the trustees will have the normal obligation to notify chargeability.