We write for trustees who want a calm, clear route from “what do we owe?” to “paid and evidenced”. We explain obligations in plain language. Our aim is to reduce worry and avoid last-minute rushes.
As an experienced team, we set out what trustees must do: check whether there is a UK liability, register if required, complete the SA900 return when needed and meet the key 31 January deadline for online filing and payment.
We will flag the two main buckets most trustees meet: income arising within a trust and certain inheritance charges. We also show how the tax year timetable works in practice and why leaving matters late adds stress and cost.
Later sections use real examples, like Helen and Graeme, to make figures practical. For now, take comfort: simple steps, good records and clear communication with beneficiaries cut the risk of queries.
Key Takeaways
- Trustees must check liabilities and register where required.
- File the SA900 and meet the 31 January online deadline.
- Two main areas: income within the trust and certain inheritance charges.
- Keep clear records to reduce the chance of enquiries.
- Practical examples later will show how to work the numbers.
Understanding what “trust tax” covers in the UK
We split what a trustee must watch into two practical areas: the yearly income side and the inheritance charges that arise at certain events.
Income tax vs Inheritance Tax charges on trusts
Income tax deals with money the trust receives each year. Many settlements have a small tax-free amount — often around £500 — before tax is due.
Separately, some discretionary or relevant property arrangements face entry, ten-yearly and exit IHT charges. These are event-driven rather than annual.
Key parties and terms
We keep language simple. The settlor puts assets into the arrangement. Trustees manage those assets. A beneficiary receives income or capital when distributed.
Why the type matters
The kind of arrangement you administer drives the rates, the filing form and the key date you must meet. For example, SA900 covers income and gains. IHT100 covers certain inheritance events.
- Common trust assets: cash, investment portfolios and property.
- Where a trust arises from a will, it can tie into the wider estate position.
- Keep records you can show if officials ask for evidence.
For guidance on protecting property and how these rules link to wills, see our practical estate guide at protect your property in trust.
Identify your trust type and its tax position before you pay tax
Pin down the legal form of the arrangement at the year end. That choice shapes reporting, rates and whether the relevant property regime applies.
Accumulation or discretionary arrangements
These are where trustees decide whether to keep or distribute income. They often sit inside the relevant property regime for inheritance charges.
Why it matters: retained income is taxed inside the arrangement, and ten-year charges may apply.
Interest in possession
A beneficiary with a right to receive income as it arises changes the income story. That beneficiary is usually treated as the recipient for current income reporting.
Bare arrangements
Here the beneficiary is absolutely entitled to assets. Usually, the legal and beneficial ownership align and the arrangement is outside the relevant property regime.
Assets, income and what you own
Different streams—bank interest, dividends, property income—follow different rates and reliefs. Match each income type to your arrangement type before you file.
| Arrangement | Who pays on income | Relevant property? | Common assets |
|---|---|---|---|
| Accumulation/Discretionary | Trustees | Often yes | Investments, cash |
| Interest in possession | Beneficiary | No (usually) | Rental property, dividends |
| Bare trust | Beneficiary | No | Shares, cash |
Quick year-end checks: confirm the arrangement type, list income by source, and note any distributions. If you have mixed assets or historic additions, seek specialist advice.
hmrc trust tax payment process: a step-by-step overview
We give a simple four-step map you can reuse each year. Follow it to move from uncertainty to a clear, evidenced outcome.
Step 1: Confirm whether the arrangement has a UK liability for the tax year. Look for small-income thresholds and records of distributions. If in doubt, note the figures and seek brief advice.
Step 2: Register or check registration and get the right reference numbers. Confirm you appear on the Trust Registration Service when required. Correct references help HMRC match any return or payment to the right position.
Step 3: Prepare figures and complete the correct return or form. Collect bank interest slips, dividend vouchers and rental schedules before you start the return. Keeping tidy source information reduces errors and rework.
Step 4: Pay the amount due by the deadline and keep evidence. Screenshots, bank confirmations and trustee minutes show who approved the pay tax action. Store these alongside the return for the end tax year.
“Plan backwards from key dates—31 January matters for online self assessment—and keep good records to avoid late charges.”
- Quick summary: check liability, confirm registration, prepare and file the return, then pay and evidence the amount.
- Remember that IHT events follow different rules and timing to annual returns.
Registering the trust with the Trust Registration Service (TRS)
Start by checking whether the arrangement must appear on the registration service — it makes future compliance simpler.
When registration is required
Trustees normally need trust registration service entries where the arrangement has a UK tax liability or when it meets the reporting thresholds. Complex estates and relevant property arrangements are commonly registered. Registration ensures the arrangement is visible for official correspondence and compliance checks.
What information you will need
Gather clear information before you start. Typical details include:
- settlor name and date of birth
- full trustee names and contact details
- beneficiary or beneficial owner identities
- a short summary of assets held
How the registration service links to ongoing compliance
Once registered you get references and a unique identifier that helps match returns and communications. Keep records up to date — changing trustees or beneficiaries means amending the entry so officials see the current picture.
Common stumbling blocks
Missing ID for beneficiaries, unclear settlor details or scant asset summaries often slow registration. Store the information securely and note who approved each update.
“A correct registration reduces queries and makes later filings easier.”
Gather the numbers HMRC expects at the end of the tax year
Collecting neat, dated figures as the year closes makes filing straightforward and reduces queries later.
Income sources to capture
List each source of income with dates and totals. Capture bank interest, dividends, rental property receipts and any other income the arrangement received during the tax year.
Tracking assets and allowed costs
Keep a clear ledger of assets and separate capital movements from income. Mixing the two creates avoidable errors.
Record invoices and admin costs. Save bills, receipts and notes that explain each cost.
Recording distributions
Note every distribution to each beneficiary. Record the date, amount and whether you treated it as income or capital at the time.
Supporting documents and dates
Keep bank statements, completion statements for property and trustee minutes. Accurate dates speed up checks and reduce follow‑up questions.
“A tidy numbers pack makes the end tax year a tidy file rather than a scramble.”
| Item | What to record | Why it matters |
|---|---|---|
| Bank interest | Date, payer, gross and net interest | Matches total income and interest shown on forms |
| Dividends | Voucher, date received, amount | Needed to allocate income between arrangement and beneficiaries |
| Property income | Tenancy receipts, repairs, completion statements | Helps separate income from capital and claim allowable expenses |
| Distributions | Date, beneficiary name, amount, income or capital | Needed for reporting and beneficiary records |
Practical checklist: build a running totals sheet that reconciles total income against bank entries and documents. If you need guidance on registering or related steps, see our short guide to registering a trust as a trustee for UK families at register a trust as a trustee.
Calculate income tax due on trust income (rules, rates and allowances)
A quick sense-check of receipts and allowable costs often shows whether a formal calculation will be needed. Start by listing gross interest, rental receipts and any dividends for the year. Note the £500 tax-free amount many arrangements benefit from.
How the tax-free amount interacts with taxable income
Subtract the £500 allowance from the total income. If the remaining amount is small, you may not need an immediate payment. If it exceeds the allowance, prepare a full calculation.
Different rates by income type and arrangement
Rates depend on both the income type and the arrangement type. Interest often faces a different rate to property income.
Discretionary or accumulation arrangements can face higher rates on some income. That raises the effective charge on the same amount of income.
Worked example: interest and property income
Example: gross interest £600 and rental income £4,400 gives total income £5,000. Remove the £500 allowance and allowable expenses. The remaining amount is taxed at the relevant rates for each income type. This produces a clear sum due and a figure to record.
When beneficiaries must report income
If trustees distribute income, beneficiaries may need to include it on their Self Assessment. Provide vouchers, dates and amounts so they can report correctly.
“Keep simple records and give beneficiaries a clear income statement each year.”
For trustees’ wider responsibilities see trustees’ tax responsibilities.
Complete and submit the Trust and Estate Tax Return (SA900)
The SA900 brings together income, gains and distribution details in one formal return. This is the form trustees use to report what the arrangement received in the tax year and how income was shared. Complete it with care. Accuracy reduces follow-up queries.
What the SA900 covers: income, gains and distributions
The SA900 captures: bank interest, dividends, rental receipts, capital gains and records of distributions to beneficiaries. It links individual items to the overall figures on the return so officials can reconcile entries.
Online filing timeline and the key 31 January deadline
File online by 31 January following the tax year. Late submission can trigger penalties. We recommend an internal calendar with milestones: draft figures by October, review in November, final checks in December and submit by mid‑January.
Common mistakes that delay processing or trigger penalties
These errors cause problems:
- Mismatched totals between schedules and the main return.
- Missing distribution details or unclear treatment of a distribution as income or capital.
- No asset summaries to support gains figures.
“A tidy file and a simple calendar cut the chance of penalties.”
Before you submit — quick checklist:
| Item | Why it matters | Action |
|---|---|---|
| Income schedules | Matches totals on the return | Reconcile to bank statements |
| Distribution records | Shows who received what and when | Attach dates, amounts and treatment |
| Gains and asset summaries | Supports capital gains entries | Include acquisition and disposal details |
| Trustee approval | Evidence of oversight | Minute the sign‑off before filing |
Follow the checklist and keep a copy of the submitted return and the supporting information. That makes answering any queries simple and keeps trustees confident the return reflects the year’s position.
Make the payment to HMRC correctly and on time
Choosing how and where to send funds is as important as knowing the amount due. We focus on routes, references and simple records so the payment matches the return and everyone stays confident.
Choosing the right route and reference
Use the correct bank account and reference number. If you send money to the wrong account it can sit in a matching backlog. That slows resolution and can create extra queries.
Online bank transfer, BACS or CHAPS all work. Confirm the receiving account shown on official guidance and add the exact reference the office gives you.
Request a reference before sending money
If a reference is needed but not yet available, our practical rule is: request first, pay after. Ask for the reference and wait for confirmation.
Paying too early can mean the amount arrives without the key information officials need to match it to your return.
What happens if you miss the date
Missing the end date means interest starts to run on the overdue amount. Penalties can follow if the delay continues.
Contact officials early if you think you will miss a date. They may give options to reduce additional charges.
Simple records every trustee should keep
Keep these items for your file:
- bank confirmation or screenshot showing the date and amount;
- the payment reference used;
- a short line in trustee minutes approving the pay tax action.
“A correct reference beats a hurried transfer every time.”
| Action | Why it matters | Who signs off | Example |
|---|---|---|---|
| Confirm account details | Ensures funds arrive at the right ledger | Lead trustee | Check official guidance before transfer |
| Obtain reference | Allows officials to match to the return | Administrator | Request reference, then wait to pay |
| Record payment | Proof for future queries | All trustees | Save screenshot and note in minutes |
| Review late options | Minimises interest and penalties | Lead trustee & adviser | Contact officials promptly |
Paying inheritance charges for discretionary and relevant property trusts (IHT100)
When discretionary arrangements hold capital, different inheritance charges can apply and trustees must watch timing closely.
Gifts into a discretionary arrangement are treated as chargeable lifetime transfers. Values above the settlor’s nil rate band face a 20% charge on the excess. For example, Helen gave £400,000; with a £325,000 nil rate band the taxable excess was £75,000, so the charge was £15,000. Trustees report this on the IHT100 and diarise the deadline: payment falls within six months after the end of the month of the event.
Seven‑year rule and further liability
If the settlor dies within seven years, further calculations at death rates can arise. Taper relief may reduce the additional amount. Keep records of dates and historic values to make later work straightforward.
Ten‑year periodic charges and exits
At each ten‑year anniversary a periodic charge is due. The effective rate is derived from the value and then 30% of that rate is applied.
Exit charges apply when capital leaves. Within the first ten years trustees use historic values and quarter calculations. After ten years the rate can be recalculated using the nil rate band at the exit date.
“Check for exit charges before you distribute; the numbers and forms matter.”
| Event | Typical rate | When due |
|---|---|---|
| Entry (CLT) | 20% on excess | 6 months after month end |
| Ten‑year periodic | Derived, then 30% applied | At each 10‑year anniversary |
| Exit (early) | Quarterly historic basis | When assets leave in first 10 years |
| Exit (after 10 years) | Recalculated using nil rate band | When assets distributed after anniversary |
For practical guidance on protecting family assets and completing forms, see our guide to secure your family’s future.
Handling distributions to beneficiaries without creating avoidable tax problems
A short, clear distribution note saves beneficiaries hours when they complete their tax return. Prepare one for every payment that shows the amount, the date and whether it was paid from income or capital.
Income vs capital distributions and why the distinction matters
The label matters because it changes how a beneficiary reports the receipt and how the arrangement’s position is shown on returns.
Income distributions are likely to appear on a beneficiary’s Self Assessment. Capital distributions usually do not, though they can affect IHT calculations in some cases.
Providing beneficiaries with the information they need for their tax returns
Give each beneficiary a short summary that includes: amount, date, nature (income or capital) and any tax credit attached.
“A one‑page summary avoids last‑minute chasing and reduces errors on the tax return.”
Planning distributions around key dates to reduce complexity
Consider timing payments to fall cleanly inside a single tax year. That keeps calculations simple and avoids splitting the same distribution across two returns.
- Document the decision in trustee minutes.
- Keep one file with distribution records and supporting receipts.
- Send the yearly summary to beneficiaries well before filing deadlines.
| What to record | Why it matters | Who needs it |
|---|---|---|
| Amount and date | Matches bank entries and return figures | Beneficiary and trustees |
| Income or capital | Determines reporting on a tax return | Beneficiary |
| Any tax credit | Shows if reliefs or credits apply | Beneficiary and adviser |
Conclusion
Focus on the essentials: confirm liability, gather clear information, complete the right return and keep proof of actions.
Remember the two timelines you juggle: the annual filing route with its key 31 January point and the event‑driven estate deadlines that often follow within six months of an event. Check the deed to know which rules and rates apply.
Good records protect trustees. Save supporting documents, keep a distributions log and retain proof of submission and payment. Small date differences or prior gifts can change the outcome, as our case examples show.
If your arrangement spans many years, involves property or complex distributions, seek specialist help so you can act with confidence. For more on inheritance issues see our inheritance tax guidance.