⚠️ Please note: we are currently working on updating our tax guidance for 2020/21
across the LITRG website
Income from a trust or from the estate of a deceased person
Other tax issues
If you receive some income from either a trust or from the estate of a deceased person, you may have further tax to pay on the income or you may be able to claim a tax refund. In some cases you are taxable on trust income even if you do not receive it, but you can follow the guidance below as if you had received it.
Our guidance here is only relevant to trusts that are not settlor interested (which basically means that the person who put the money into the trust can still get a benefit from it).
First things first. We use the word trust here but sometimes you will hear the word settlement instead.
When the trustees pay out any funds to you, they should tell you whether it is income or capital. When trust income is taxable on you, the trustees should provide you with a form R185 (Trust income). This form shows you the income paid to you and the tax deducted from it. The form also gives you instructions on how to complete a tax return including this income.
This is very straightforward if it is a payment from a discretionary trust (the type of trust will be shown on the form R185). All of this trust income will have had tax deducted from it at a rate of tax of 45% (2020/21). Regardless of the type of income actually received by the trust, you are treated as receiving one type of income – trust income. If you pay tax at a lower rate than the tax deducted from your trust income, you will be able to get a tax refund, so please check. You can read how to claim your tax refund in our tax basics section.
On the other hand, if the income you have received is NOT from a discretionary trust, your income may have been taxed at a variety of tax rates, depending on the type of income received by the trust. That is why you need to put the different types of income into separate boxes on any tax return. But this also means that you may be able to claim a tax refund if you have not used your personal savings or dividend allowance, for example. This is because any savings and dividend income you receive from the trust will have had tax paid on it by the trust, but in your hands it may not be taxable. Be aware, though, that the maximum rate of tax deducted from this type of income is UK basic rate (20% in 2020/21). This might mean that you have to pay extra tax on the income if you are a higher rate taxpayer or above.
If you receive a payment from a trust, or from the estate of a deceased person, you should ask the administrator of the trust or estate to confirm to you whether the payment you have received is income or capital. If any of the payment is income, you should request a form R185(Trust income) or R185 (estate income).
I have received income from the estate of a deceased person. What do I need to do?
Your income from the estate will be treated in exactly the same way as the trust income that is NOT from a discretionary trust, as described above. The administrators of the estate should be asked to provide you with form R185 (estate income). That will give you the information you need to complete a tax return or to make a repayment claim.
Where can I get more information?
You can read more information about trusts on GOV.UK.
There is more information on bereavement generally in our bereavement section.