A beneficiary may receive an annuity paid out of trust income.
Income paid as an annuity differs from income paid to a beneficiary with an Interest in Possession trust in that it is classed as an annual payment and is therefore taxed at the basic rate.
However, it is also considered to arise rateably out of trust income, or, if directed by the trust deed, out of a specified source, and as such is relievable by reference to the underlying source(s). By ‘rateably’ we mean that the beneficiary’s payment contains the same proportion of each strand of income as the total received by the trustees. Annuities paid out of trust income are not covered by ‘other income’ articles.
A distribution to an annuitant will usually be supported by an
R185. As this does not give a breakdown of income underlying the
payment, you will need to find out what this is. If it is clear
from previous papers that the annuity is funded from a specified
source (for example, a FOTRA security) you can pay the claim on
that basis without further enquiry.
Otherwise, you will need to call for the trust file from HM Revenue & Customs. If the information you need is not available from the trust return you will need to write to the claimant and ask for a breakdown of the trust’s income. Remember that you will have to open an SA enquiry to ask for the information you need. See INTM331200 for guidance on how to open an enquiry.
The whole of the tax shown at the basic rate is available for repayment, subject to any double taxation restriction.