805 Surcharge on certain income of trustees

Summary

This section imposes a surcharge of 20 per cent on income, arising in a year of assessment to certain trustees, which is not distributed within the year of assessment or within 18 months after the end of that year in such a way as to become the income of the person to whom it is distributed. The surcharge liability is regarded as part of the income tax liability for the year of assessment in which it is incurred.

Details

Definitions

(1) The term “personal representative” has the same meaning as in section 799(1).

The term “trustees” does not include personal representatives. However, where personal representatives, on or before the completion of the administration of the estate of a deceased person, pay any accumulated income to a trust created under a will, the payment is to be treated in the hands of the trust as a net sum after deduction of income tax at the standard rate so that the trustees of the trust will be liable, in the event of their failure to distribute the income within the period of grace, to the surcharge on the grossed up equivalent of the income received from the personal representatives.

Application

(2)(a) The section applies to income which is to be accumulated or which is payable at the discretion of trustees. The latter provision is necessary because, even though trustees may not have been given express power to accumulate the income, they may defer distribution pending the exercise of their discretion.

Exceptions

The section does not apply —

• (2)(b) in circumstances where the income is regarded as income of the beneficiary under the trust, for example, where property is held for the benefit of a minor indefeasibly (that is, the benefit cannot be lost) so that the minor or his/her estate will in any event receive the income,
• in circumstances where under the Income Tax Acts the income arises under settlements and is deemed to be the income of the settlor (and, therefore, liable to income tax in his/her hands),
• (2)(c) to income arising under a trust established for charitable purposes only or to income from investments of a trust devoted solely to the provision of, broadly speaking, pensions, lump sums and gratuities given on retirement or death,
• (2)(d) to expenses which are properly chargeable to income or which would be so chargeable but for any express provisions of the trust, and
• (2)(e) to income of the trust which is distributed in the year of assessment in which it arises, or within 18 months after the end of that year, in such circumstances that the income is to be treated as the beneficiary’s income for all the purposes of the Income Tax Acts.

The surcharge

(3)(a) An additional duty of income tax (called a surcharge) of 20 per cent is chargeable on income to which the section applies, in addition to income tax at the standard rate.

(3)(b) The surcharge, to be made on the trustees in respect of income arising in a year of assessment, is to be charged on the trustees for the year of assessment in which the period of 18 months beginning after the end of the year of assessment, in which the income arises, ends. The surcharge is to be treated as income tax chargeable for the year of assessment in which it so charged.

(3)(c) All the provisions of the Income Tax Acts (that is, those relating to assessments, collection, appeals, etc) apply to the surcharge in the same way as they apply to normal income tax.

(4) The recipient of a distribution out of income which has been subjected to the surcharge is not to get a credit for any part of the surcharge.

Information and penalties

(5) Provision is made for the obtaining of information about the income of, and distributions by, trustees and about the identity of beneficiaries. Provision is also made for invoking the penalty provisions of sections 1052, 1053 and 1054 for failure to supply such information.

Relevant Date: Finance Act 2021