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There is uncertainty as to whether a form R185 (Trust Income) or a form R185 (Settlor) should be issued when a settlor is the beneficiary of an interest in possession trust
Our client is the settlor and life tenant of an interest in possession trust. I understand that ITTOIA 2005 s 624 does not apply to the income he receives because there is no need to apply a deeming provision.
In this situation I would expect the trustees to provide him with a form R185 (Trust Income) rather than R185 (Settlor). The effect would be to reduce his income by any trust management expenses (TMEs) properly charged against income.
However this is at odds with the HMRC guidance in Helpsheet 270. This suggests that an R185 (Settlor) should be used and “this amount may be more than the income to which you are entitled under the deed as they may have used some of that income on expenses incurred in managing the trust”.
Of course the deemed income would not be reduced by any TMEs.
I appreciate that...
