Paying tax on trust and estate income
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).
Content on this page:
Receiving money from a trust
If you are the beneficiary of a trust, the trustees might pay money to you from the trust (sometimes called a ‘distribution’). The way this money is then taxed on you depends on the type of trust and the nature of the payment – in particular, whether the payment you receive is an income distribution or a capital distribution. In this guidance we look at the tax position where an income distribution is made to you. We explain more about the different type of trust in our page Trusts and estates.
If the trust is a bare trust, then any income arising within the trust is taxable on you as though you owned the trust assets personally. This is regardless of whether the income is actually paid to you. In this case, the trustees should let you know what income needs to be declared on your own tax return.
For example, if you are the beneficiary of a bare trust that owns a rental property, the trustees would need to let you have full details of the income and expenses of the rental property so that you are able to complete the property pages of your own tax return.
If your payment is from a discretionary trust, then the trustees will pay tax at the additional rate on the income before it is paid to you. The trustees should provide you with a form R185 (trust income) showing the amount of the distribution, which will be treated as having had tax deducted from it at a rate of 45% (2023/24) before it is paid to you.
Regardless of the type of income received by the trust, you are treated as receiving one type of income – trust income. If you complete a tax return each year, you need to include the income on the Trusts etc pages. For more information, see below.
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. You can read how to claim your tax refund in our page Tax refunds.
Interest in possession trusts
If the income you have received is from an interest in possession trust, then the trustees will have paid tax on the income before it is paid to you. However, interest in possession trusts are taxed at the basic rate. The trustees will provide you with a form R185 (trust income) and the distribution will be shown in the section titled ‘non-discretionary income entitlement from a trust’.
The trust income may have been taxed at a variety of tax rates, depending on the type of income received by the trust. This means you need to put the different types of income into separate boxes on the trust pages of your tax return, following the instructions on the R185 form.
It also means that you may be able to claim a tax refund, for example if you have not used your personal savings allowance or dividend allowance. 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, no tax might be due on it. You can read how to claim a tax refund in our page Tax refunds.
Be aware, though, that the maximum rate of tax deducted from this type of income is UK basic rate (20% in 2023/24). This might mean that you have to pay extra tax on the income if you are a higher rate taxpayer or above.
Income from a deceased estate
Your income from the estate will be taxed in the same way as the trust income from an interest in possession trust, as described above.
The administrators of the estate should provide you with form R185 (estate income). If you have not received a form R185 but have received a payment from an estate, check with the executors or personal representatives administering the estate whether any of the payment is income and, if the answer is yes, when you will be receiving the R185.
If you complete a tax return, you will need to put the figures from form R185 on the Trusts etc pages of the tax return (see below). There is also more information on the R185. If you do not normally pay tax, or if the income from the estate would be covered by your personal savings allowance or dividend allowance, then you may be able to claim a refund. You can read how to claim a tax refund in our in our page Tax refunds
Tax return reporting
As noted in the information above, you have to put trust income (other than bare trust income) and estate income on the Trusts etc pages of the tax return. You will need to do this using the information shown on forms R185 (trust income) and/or R185 (estate income).
You can use the trusts pages if you fill in a paper tax return. This usually needs to be submitted by 31 October after the end of the tax year to which it relates. This means 31 October 2024 for the tax year ending 5 April 2024.
If you fill in your tax returns online, you have a longer filing date. This is 31 January 2025 for the tax year ending 5 April 2024. However, you cannot use HMRC’s own online filing system to send them a tax return including trust and estate income which would go on the trusts pages of the paper return. You can file online, but you have to use third-party software and make sure the version you use supports filing of the trust pages.
You can read more information about trusts on GOV.UK.
There is more information on bereavement generally in our page Bereavement: tax issues on death.
Scottish taxpayers should also read the information in our page Scottish income tax.