Trustee Responsibilities for Tax Reporting
Trustees are legally obligated to report and pay tax on behalf of the trust. If a trust becomes liable for tax, it must be registered with HMRC. This includes submitting the Trust and Estate Tax Return, also known as form SA900, annually after the tax year ends on 5 April.
When there are multiple trustees, one is designated as the principal acting trustee. This individual manages the trust’s tax affairs, though all trustees remain legally accountable for compliance.
Trustees must maintain accurate records of the trust’s income, expenses, and investments. These records are essential for completing the SA900. Failure to maintain or submit accurate documentation may lead to penalties from HMRC.
Filing Deadlines and Methods
Trustees have specific deadlines to meet:
- 31 January following the end of the tax year for online submissions
- 31 October for paper returns or if the trustee requests HMRC to calculate the tax
Missing these deadlines results in an automatic penalty of £100.
Trustees cannot use HMRC’s online services to file the SA900. Instead, they must choose between approved third-party tax software, submitting a paper form, or using a professional accountant. While paper returns are rarely used due to complexity, professional accountancy services can be expensive.
After submission, HMRC assesses the return and calculates the tax due. Payment must be made by the same deadline. Trustees must also provide beneficiaries with a detailed statement showing income received and tax paid if requested.
Income Tax on Trust Income
Most trusts do not incur Income Tax unless their total annual income exceeds £500. Once this threshold is crossed, the full amount becomes taxable. The rates applied depend on both the type of trust and the nature of the income, such as dividends, property income, or interest.
Trustees are not eligible for the dividend allowance, which is set at £500 for the 2024/25 tax year. This means that all dividend income is taxed once the trust’s total income exceeds the threshold.
Beneficiaries who receive income from the trust must report it through Self Assessment. They must file:
- SA100 (the main Self Assessment return)
- SA107 (the supplementary pages for trust income)
The same applies to settlers who receive taxable income from the trust. These individuals must also use the appropriate Self Assessment forms.
Beneficiaries and settlers cannot use HMRC’s standard online platform to file the SA107. Instead, they must rely on suitable alternatives that allow submission of both SA100 and SA107 forms.
Capital Gains Tax and Trusts
Capital Gains Tax (CGT) may arise when assets are transferred into or out of a trust. If a trustee sells or transfers assets such as property or investments, CGT may be payable. The trustee must calculate any gains and determine the amount of tax due.
This calculation should take into account allowable expenses, such as acquisition and improvement costs, which can reduce the gain. Reliefs that may apply include:
- Private Residence Relief
- Business Asset Disposal Relief
- Hold-Over Relief
CGT is payable only if the total taxable gains exceed the annual exempt amount:
- £1,500 for standard trusts
- £3,000 if the beneficiary is disabled or a child whose parent has died
The trustee must report these gains using the SA900 and the Capital Gains supplementary pages (SA905). Bare trusts differ slightly. In these cases, no CGT is due when assets are transferred to the beneficiary, as the beneficiary is treated as the direct owner for tax purposes.
CGT Reporting Deadlines for UK Residential Property
Trustees selling UK residential property must report and pay CGT within set deadlines, using a dedicated Capital Gains Tax on UK property account:
- Within 60 days if the completion date was on or after 27 October 2021
- Within 30 days for sales completed between 6 April 2020 and 26 October 2021
For disposals involving other types of assets, the trustee must use the SA900 and SA905 forms.
Trustees and beneficiaries cannot rely on HMRC’s default services to manage these filings. Filing must be completed using approved methods that ensure compliance and accuracy. Errors or delays can result in financial penalties and legal complications.
Record Keeping and Supporting Documentation
To meet their tax obligations, trustees must retain detailed records of all transactions, income sources, expenses, and asset transfers. This documentation is critical for accurate completion of SA900 and its supplementary forms.
Without proper documentation, trustees may struggle to justify figures in the return, leading to inquiries from HMRC and potential penalties. Trustees should also keep records of any correspondence with HMRC, professional advisors, and beneficiaries.
These documents should be stored securely and be easily accessible for at least six years following the end of the tax year to which they relate. In some cases, HMRC may request older records if an investigation is launched.
Implications for Beneficiaries
Beneficiaries receiving income from a trust must understand their own reporting requirements. If the income exceeds the threshold for automatic tax deductions or if tax was already paid at the trust level, the beneficiary might still need to declare the income via Self Assessment.
Where applicable, beneficiaries can reclaim tax that was overpaid, but only if they submit accurate and complete Self Assessment returns, including SA107.
Some beneficiaries may be unfamiliar with these requirements, especially when receiving distributions from family trusts. Trustees should inform beneficiaries of their tax obligations and, where possible, provide them with a breakdown of income and tax paid to assist in their reporting.
Trust Types and Tax Variations
The type of trust plays a major role in how it is taxed. Discretionary trusts, interest in possession trusts, and bare trusts all have unique tax treatments:
- Discretionary trusts are taxed at higher rates, and trustees decide how and when to distribute income.
- Interest in possession trusts provide beneficiaries with a guaranteed right to income and are taxed differently.
- Bare trusts are treated as though the beneficiary owns the assets directly, with simpler tax implications.
Understanding the classification of the trust is essential to apply the correct tax treatment and ensure compliance.
Trustees managing more than one trust must treat each trust as a separate entity for tax purposes. Each must have its own SA900 and appropriate supplementary pages if it meets the criteria for tax liability.
Overview of Trust Types and Their Tax Treatment
Trusts in the UK are not one-size-fits-all structures. The way a trust is taxed depends largely on its classification. Understanding the various trust types is critical for trustees and beneficiaries when preparing tax returns, managing distributions, and fulfilling legal obligations. Each category has unique income and capital gains tax rules.
Discretionary Trusts
Discretionary trusts give trustees full authority over how income or capital is distributed among the beneficiaries. There is no automatic entitlement for any one beneficiary, which offers flexibility but introduces complexity for taxation.
Income within discretionary trusts is subject to a higher tax rate. For the 2024/25 tax year, income above the standard rate band is taxed at the trust rate, which is significantly higher than the rates for individuals. Trustees must calculate, report, and pay this tax through the SA900 form.
In addition, any income paid to a beneficiary is accompanied by a tax credit. Beneficiaries must report this on their own Self Assessment forms, specifically the SA100 and SA107.
Interest in Possession Trusts
These trusts entitle a named beneficiary to receive income generated by the trust assets for a fixed period or for life. The beneficiary has a legal right to the income but not necessarily the underlying capital.
Income from interest in possession trusts is taxed at basic rates by the trustee. This includes interest income and dividend income. The beneficiary is treated as having received this income directly and may be liable for additional tax depending on their personal tax band. Reporting is done through SA107.
The trustee still has to report all income and complete the SA900 but pays the tax at a lower rate compared to discretionary trusts.
Bare Trusts
A bare trust is the simplest type, often used for holding assets for minors. The beneficiary has an absolute right to both the income and the capital. The trustee’s role is largely administrative.
For tax purposes, income and gains are treated as if they belong directly to the beneficiary. Therefore, it is the beneficiary who must report and pay any tax due. If the beneficiary is under 18, their parent or guardian may assist in filing the Self Assessment.
Although bare trusts are straightforward, they still require attention to detail when it comes to reporting. Capital gains and income must be tracked to ensure compliance.
Mixed Trusts and Settlor-Interested Trusts
Mixed trusts contain elements of different types of trusts within one structure. They can include both discretionary and interest in possession components. Trustees must treat each part separately for tax purposes, calculating income and gains according to the relevant rules.
Settlor-interested trusts are those where the settlor or their spouse/civil partner retains an interest in the trust. These trusts are taxed as though the income belongs to the settlor, and they must include it on their own Self Assessment return.
Trustees of such trusts still need to complete the SA900 but may not be liable to pay tax themselves.
Completing the SA900 Tax Return Form
The SA900 Trust and Estate Tax Return is the primary vehicle for reporting trust income, expenses, and capital gains to HMRC. It consists of several sections and supplementary pages. Completing it correctly is a legal obligation and essential to avoid penalties.
Information Required for SA900
Before completing the SA900, trustees should ensure they have the following:
- Full trust details including Unique Taxpayer Reference (UTR)
- Records of all trust income: dividends, rental income, bank interest
- A breakdown of expenses directly related to trust management
- Capital gains or losses from the disposal of trust assets
- Details of any payments made to beneficiaries
Key Sections in SA900
The main form covers general information about the trust, including its type and tax status. Supplementary pages are required based on the type of income or gains reported:
- SA901 for interest in possession trusts
- SA902 for discretionary or accumulation trusts
- SA903 for employment-related trusts
- SA904 for charitable trusts
- SA905 for capital gains
Each section demands accurate entries, which means precise bookkeeping throughout the tax year is critical.
Common Errors to Avoid
When filing SA900, trustees must be careful to avoid common pitfalls, including:
- Failing to include all taxable income
- Misreporting trust type
- Using incorrect tax codes
- Omitting capital gains or using outdated relief rates
Incorrect or incomplete returns may trigger HMRC inquiries and result in penalties or interest charges.
Supplementary Forms: SA107 and SA905
Trust tax reporting does not end with SA900. Depending on the trust activity, supplementary forms must be submitted alongside it.
SA107: Trust Income for Beneficiaries
Beneficiaries must include details of trust income in their personal tax returns using SA107. This form is essential for reporting:
- Discretionary income payments with associated tax credits
- Interest in possession income received directly
- Any tax deducted at the trust level
Beneficiaries often fail to realise that even if tax has already been deducted by the trustee, they must still report the income. They may be eligible to reclaim overpaid tax, particularly if they fall within the basic rate band.
SA905: Capital Gains Reporting
When a trust sells or transfers assets, capital gains must be reported on SA905. This form breaks down each disposal:
- Date and value of acquisition
- Disposal date and proceeds
- Allowable costs and reliefs
The total gain is then summarised, and the applicable CGT rate is applied. Trustees must also report whether the gain exceeds the annual exempt amount, which varies depending on the beneficiary’s status.
All supporting documentation must be retained in case HMRC requests further evidence of calculations.
How Trustees Calculate Income and Capital Gains
Calculating the correct amount of income and capital gains is fundamental. Trustees must distinguish between gross and net income, account for expenses, and apply the correct tax rates and allowances.
Income Calculation
Income from investments must be recorded as gross, before any tax deduction. For example:
- Dividends must be shown before any notional tax credit
- Bank interest must include gross amount before tax deducted by banks
- Rental income should be recorded before deducting allowable expenses
Allowable expenses include professional fees, management costs, and specific maintenance costs related to trust assets.
Capital Gains Calculation
For capital gains, trustees must:
- Determine the acquisition cost of the asset
- Record the sale or transfer value
- Subtract allowable costs, including acquisition fees and improvement expenses
- Apply available reliefs, such as:
- Hold-over relief for gifts
- Private residence relief for qualifying property
Once the gain is calculated, trustees must determine if it exceeds the annual exemption and apply the appropriate tax rate.
Interaction Between Trustees and Beneficiaries
Effective communication between trustees and beneficiaries is vital. Trustees are not only required to manage the trust and file returns but must also provide income and tax summaries to beneficiaries.
These summaries are essential for beneficiaries to complete their Self Assessment accurately. They outline:
- The type of income received
- Amount of tax deducted by the trust
- Net payment made to the beneficiary
Without this documentation, beneficiaries may underreport or overreport their income, leading to errors and potential penalties.
Trustees should aim to provide this information shortly after the tax year ends so that beneficiaries can file their own returns on time.
Tax Reliefs and Allowances for Trusts
Several tax reliefs and allowances apply to trusts, although they are often less generous than those available to individuals. Understanding these is crucial to ensure the trust does not overpay tax.
Income Tax Allowance
Most trusts qualify for a standard income tax allowance of £500. Once income exceeds this threshold, tax is due on the entire amount. For discretionary trusts, the first £1,000 of income is taxed at basic rates, but this is split among all trusts created by the same settlor.
Capital Gains Annual Exempt Amount
Trusts have a reduced annual exempt amount for capital gains:
- £1,500 standard
- £3,000 for vulnerable beneficiaries (disabled or orphaned children)
This allowance is also divided among multiple trusts set up by the same individual. If trustees fail to allocate this correctly, they may face unnecessary tax charges.
Hold-Over Relief
Hold-over relief allows trustees to defer capital gains tax when gifting certain assets. The gain is effectively passed to the recipient, who pays tax only when they eventually dispose of the asset.
To claim this, both the trustee and recipient must agree and jointly make the claim.
Private Residence Relief
This applies when a trust-owned property was the main residence of a beneficiary. If criteria are met, the gain attributable to the period of occupancy may be exempt.
Trustees must document periods of residence and the beneficiary’s use of the property.
Trust Tax Compliance and Enforcement
Compliance with trust tax regulations is a legal obligation for all trustees and beneficiaries in the UK. Failing to meet these obligations can result in fines, interest on unpaid taxes, or more serious consequences. With increasing scrutiny by HMRC, understanding how to maintain compliance has never been more critical.
We focus on avoiding penalties, fulfilling obligations accurately, handling inspections, and using technology to simplify reporting. It also outlines what happens when trustees or beneficiaries make errors, and how to correct them.
Understanding Penalties and Interest Charges
Penalties are enforced by HMRC when trustees or beneficiaries fail to meet their tax responsibilities. These are usually financial but can escalate depending on the nature and frequency of non-compliance.
Late Filing Penalties
Filing the SA900 Trust and Estate Tax Return or supplementary pages after the deadline (31 January for online, 31 October for paper) results in an automatic penalty of £100. Continued delay increases the penalties:
- More than 3 months late: £10 per day (up to 90 days)
- More than 6 months late: An additional £300 or 5% of the tax due (whichever is higher)
- More than 12 months late: Further £300 or 5% (minimum), rising if the delay is deemed deliberate
Late Payment Penalties
Taxes unpaid by the deadline attract interest and penalties:
- 30 days late: 5% of the tax due
- 6 months late: An additional 5%
- 12 months late: A further 5%
Trustees should plan in advance to meet payment deadlines, especially where capital gains or large distributions trigger significant liabilities.
Errors and Inaccuracies
If errors are found in submitted returns, penalties may also apply depending on whether the mistake was:
- Careless: Up to 30% of the unpaid tax
- Deliberate: Up to 70%
- Deliberate and concealed: Up to 100%
HMRC considers self-disclosure and cooperation when calculating the penalty. If a trustee discovers an error, they should correct it as soon as possible.
Record-Keeping Requirements
Maintaining accurate and complete records is fundamental to trust tax compliance. Records serve two purposes: they allow for accurate completion of returns and provide evidence in case of an HMRC inquiry.
What to Keep
Trustees must retain:
- Details of income received (e.g. dividend statements, bank interest summaries)
- Details of expenses paid by the trust (e.g. professional fees)
- Records of capital gains, including acquisition and disposal documents
- Copies of submitted SA900, SA905, SA107 forms
- Statements provided to beneficiaries
- Minutes of trustee meetings concerning distributions or investments
These records must be kept for at least six years following the end of the tax year they relate to.
Electronic Records
Digital record-keeping is allowed and often preferable. Documents should be stored securely, and systems should back up data regularly. Digital files must remain accessible and readable throughout the storage period.
HMRC Investigations and Enquiries
HMRC has the power to open enquiries into any trust tax return. These investigations range from routine compliance checks to detailed examinations where irregularities are suspected.
Types of Enquiries
- Full Enquiry: HMRC examines the entire tax return. This can include a review of all records, trust accounts, and correspondence.
- Aspect Enquiry: Focused on a specific area, such as capital gains or beneficiary distributions.
- Random Check: Even accurate returns can be selected for inspection randomly.
What to Expect
HMRC will notify the trustee in writing and request records. Trustees must respond within the timeframe specified. Failure to cooperate can escalate the enquiry or result in additional penalties.
Enquiries can take several months depending on complexity. If adjustments are required, HMRC will issue an amended tax calculation, and penalties or interest may be added.
Digital Solutions and Tools for Trust Tax Compliance
Given the complexity of trust tax obligations, digital tools can streamline administration and help trustees avoid costly mistakes. These tools support the preparation, calculation, and submission of tax forms while offering user guidance.
Benefits of Using Digital Tools
- Pre-filled forms: Reduce manual data entry and associated errors
- Prompting logic: Ensures no key sections are missed
- Automated tax calculations: Handles complex tax rules for different trust types
- Deadline reminders: Helps avoid late filing penalties
- Record storage: Enables secure, long-term digital record-keeping
Although HMRC does not currently offer an online system for filing trust returns, approved third-party providers make digital submissions possible.
Choosing the Right Tool
Trustees should select a solution that:
- Supports SA900 and supplementary pages
- Allows for multi-user collaboration
- Provides detailed error checks
- Offers secure document storage
If unsure, trustees can seek recommendations from professional advisors.
Common Scenarios and How to Handle Them
Trustees and beneficiaries often face similar situations year after year. Understanding how to navigate these will help maintain compliance.
Scenario 1: Multiple Beneficiaries in a Discretionary Trust
Trustees must allocate trust income among multiple beneficiaries and issue statements for each. Each beneficiary must then report the income using SA107.
Trustees need to:
- Retain clear records of how much income was distributed to each individual
- Apply the correct tax credit to each distribution
- Ensure each beneficiary receives an accurate income and tax statement
Beneficiaries need to:
- Include trust income in their SA100 and SA107
- Report the gross income, even if received net of tax
Scenario 2: Selling Trust Property with Capital Gains
A trust selling a residential property must calculate the gain and report it using a Capital Gains Tax on UK Property account within 60 days of completion. Additionally, details must be included in SA905.
Steps for trustees:
- Calculate gain using sale proceeds minus allowable expenses
- Include costs of improvements and acquisition expenses
- Claim available reliefs if applicable
- Report using the online CGT service within the time frame
Scenario 3: Transferring Trust Assets to a Beneficiary
When assets are transferred out of a trust, it can trigger capital gains depending on the trust type. Trustees must:
- Establish whether the transfer constitutes a disposal
- Calculate any gain
- Report using SA900 and SA905 if the exemption is exceeded
In bare trusts, no tax arises, but records of the transfer must still be maintained.
Scenario 4: Trust Income Below the £500 Threshold
Even when income is below the £500 exemption, trustees may still be required to file if HMRC sends a notice to file. Trustees must check the trust’s registration and tax obligations every year.
If no return is due, trustees should notify HMRC to avoid unnecessary penalties.
Correcting Errors in Tax Returns
Trustees or beneficiaries who discover an error in a submitted tax return should correct it immediately. There are two main methods depending on timing:
Within 12 Months
If the discovery is made within 12 months of the filing deadline, an amended return can be submitted without penalty (unless the error was deliberate).
Trustees must:
- Complete a revised SA900
- Submit it through the same channel as the original return
After 12 Months
Corrections beyond 12 months must be made through a formal disclosure to HMRC. Trustees must:
- Write to HMRC explaining the mistake
- Include corrected figures and calculations
- Pay any tax and interest due promptly
HMRC will assess whether a penalty is applicable based on the nature of the error and the trustee’s conduct.
Strategies for Trust Tax Management
Trustees should adopt proactive strategies to manage the trust’s tax position efficiently. This includes tax planning, regular reviews, and consultation with experts.
Annual Tax Review
Before the end of the tax year (5 April), trustees should:
- Review investment performance
- Estimate trust income and capital gains
- Consider timing of asset disposals
- Check if beneficiary distributions could optimise tax treatment
Documentation and File Management
Organised filing systems help ensure that records are available when needed. Trustees should:
- Label and date all correspondence
- Store digital copies in secure cloud environments
- Track deadlines with automated alerts
Communicating with Beneficiaries
Trustees should maintain transparency with beneficiaries. Annual summaries, timely notices of distributions, and clear communication help beneficiaries meet their own obligations and foster trust management best practices.
Conclusion
Managing a trust involves significant responsibility, especially when it comes to understanding and complying with the UK’s tax rules. Across this series, we’ve explored the essential components of trust taxation—from understanding the roles of settlers, trustees, and beneficiaries, to the detailed reporting obligations and processes involved in filing accurate and timely returns.
Trustees are required to manage complex tax responsibilities, including Income Tax and Capital Gains Tax, ensuring all financial activities are correctly recorded, calculated, and reported. Whether it involves registering the trust, completing the SA900 and supplementary forms, calculating capital gains, or issuing statements to beneficiaries, precision and compliance are key. Missing a deadline or making a reporting error can result in substantial penalties and interest, highlighting the importance of staying organized and informed.
Beneficiaries also have vital obligations. They must report income from trusts using the correct Self Assessment forms and, in some cases, may be eligible to reclaim tax. Understanding these responsibilities ensures that no part of the trust’s financial activities is overlooked or mishandled.
Given the administrative complexity and legal expectations, trustees and beneficiaries are well advised to use accurate, structured processes for record-keeping and tax filing. Planning ahead, staying current with changes in tax thresholds or allowances, and ensuring accurate documentation can make a significant difference in managing trust obligations efficiently.
In an increasingly regulated environment, fulfilling trust tax responsibilities is not just a legal duty—it’s a measure of good governance, transparency, and stewardship. Whether you are a trustee or a beneficiary, equipping yourself with the right knowledge, systems, and support is essential for ensuring that your trust remains compliant, efficient, and well-managed for years to come.