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.
