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HMRC internal manual

Trusts, Settlements and Estates Manual

From
HM Revenue & Customs
Updated
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Ownership and income tax: income tax principles - receiving or entitled to

There is specific tax legislation in ITTOIA 2005 saying who is liable for tax on income:

  • S271 for rental income
  • S371 for interest
  • S385 for dividends and other distributions
  • S581 for income from intellectual property, for example royalties.

For rent, interest and income from intellectual property the legislation says that the person liable for income tax is the person receiving or entitled to the income. For dividends and other distributions the legislation says the person liable for income tax is the person to whom the distribution is made or is treated as made, or the person receiving or entitled to the distribution. Further detail about particular types of income from property is given in TSEM9900.

The ‘receiving’ basis enables you to tax the person in receipt of the income, even if you cannot trace the person entitled to it. But ultimately you want to tax the person who is entitled. For example, in an interest in possession trust (TSEM1105), the trustees are initially taxable on the trust income because they receive it. But the IIP beneficiary is ultimately taxable on the trust income because he or she is entitled to it. So you tax the beneficiary on the income on the ‘entitled’ basis, and give credit for any tax paid by the trustees who received it.

In sum, for the purpose of taxation of income, you want to establish who is ‘entitled to’ the income.