InsightsInsight - Trusts - POSTED: December 6 2018
Tax returns for life interest trusts where income is mandated
Welcome news for trustees who can now challenge the validity of a notice when issued with a penalty in particular cases.
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In a recent case, the courts held that a notice to file a tax return under section 8A of the Taxes Management Act 1970 (TMA 1970) was not validly issued to the trustees of an interest in possession (IIP) trust. An interest in possession trust is a trust in which at least one beneficiary has the right to receive the income arising from the trust property or have the use and enjoyment of it.
In ‘Trustees of the Paul Hogarth Life Interest Trust 2008 v The Commissioners for Her Majesty’s Revenue & Customs  9 WLUK 256’, the court considered the appeal against a penalty imposed by HMRC for late filing. In this case, all of the trust income was directly mandated to a beneficiary.
HMRC requires a trustee to deliver a tax return if notice is given to any ‘relevant trustee’ under section 8A(1) TMA 1970. ‘Relevant trustees’ is defined at section 7(9) TMA 1970, which states that ‘they are the persons who are trustees when the income arises and/or the chargeable gains accrue.’ The Judge found that there was no ‘relevant trustee’ as the income was mandated direct to the beneficiary and no chargeable gains were made by the trustees. This means that HMRC could therefore not validly issue a notice under section 8A(1). In view of this, there was no obligation for the trustees to file a tax return and the trustees could not be penalised for failing to do so. For these reasons, the appeal was allowed.
This will be welcome news to trustees of similar matters who can now challenge the validity of a notice when issued with a penalty.
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