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Types of trust and trustee responsibilities

The extent of a trustee's responsibilities depends on the type of trust it is. For example, a 'discretionary trust' trustee is responsible for deciding when to make payments to beneficiaries. Trustees are also responsible for declaring and accounting for tax on trust investments.

In a 'bare trust', the trustee may have few duties to perform. Providing they are old enough, the beneficiaries decide how to use trust capital and income and are responsible for declaring and paying any tax due.

The person who set up the trust - the settlor - may have given instructions that trustees carry out various functions. These may be contained within the 'trust deed', which outlines the terms of the trust. Trustees are legally bound to act on these instructions.

• Types of trust and tax implications

If there is more than one trustee

Where there is more than one trustee you normally arrange for one person - known as the 'principal acting trustee' - to deal with HM Revenue & Customs (HMRC).

The actions of the principal acting trustee are treated as actions of all of the trustees, so:

• if they deal with everything properly, all of the trustees are treated as fulfilling their tax obligations
• if they fail to fulfil the trustees' obligations, all of the trustees are treated as failing to meet their obligations

All the trustees of a trust are jointly liable for any tax due, not just a share of it. As a result HMRC can recover any tax or interest on tax from any trustee, if the principal acting trustee doesn't pay or pays late. Also, any trustee can be held liable for penalties or surcharges incurred during the period he or she was a trustee.

• Tax return deadlines and penalties

Trustee obligations for Income Tax and Capital Gains Tax

Trustees are responsible for making sure that any income or gains are declared and tax is paid.

Notifying HMRC that tax is due

If you're a trustee and haven't already received a Trust and Estate Tax Return you must notify HMRC when:

• a new trust that will receive income or make chargeable capital gains has been set up
• a trust that hasn't been receiving income or making chargeable capital gains starts to do so

• Notifying HMRC about a new trust

• Reporting trust changes and events to HMRC

Keeping records of the income and chargeable gains of the trust

Trustees need to keep a record of the trust’s income and expenses. You need these records to complete the Trust and Estate Tax Return.

• Trust record keeping

Completing and sending back any tax return issued to you

If you receive a tax return or a notice to file a return from HMRC, you have to either fill in a return and send it back, or submit a return online. This applies even if your trust hasn't received any income or made any gains that year. It's important to think about whether HMRC really needs to be told about your trust. To avoid having to complete a tax return unnecessarily it's better to wait until your trust is receiving income or has made any chargeable capital gains.

The Trust and Estate Tax Return is also one of the main ways to notify HMRC about changes and events that affect the status of the trust. For example, new assets transferred into a trust, changes of address of the trustees, or the trust ending.

• Completing the Trust and Estate Tax Return

• Reporting trust changes and events to HMRC

• Tax return deadlines and penalties

Paying tax due on the income or chargeable gains of the trust

For most kinds of trust it is the trustees' responsibility to make sure that all tax due is paid on time.

Find out more about deadlines, penalties and how to pay below.

• Tax return deadlines and penalties

• How to make a Self Assessment payment Opens new window

Supplying information to beneficiaries

It's the trustees' responsibility to provide the beneficiaries of discretionary payments with a statement when asked, showing how much income they received in a tax year. The statement should also show the tax paid on that income. You can download form R185 (Trust Income) to do this. This form can also be used by trustees to inform interest in possession trust beneficiaries of their entitlement.

If the trust is settlor interested the trustees can use form R185 (Settlor) to notify the settlor of the amount of income to be taxed to the settlor and the amount of tax already paid on behalf of the settlor.

• Form R185 (Trust Income) and other important forms for trusts Opens new window

• Form R185 (Settlor) for settlor-interested trusts Opens new window

Trustee obligations for Inheritance Tax

For Inheritance Tax purposes trustees are responsible for letting HMRC know when a 'chargeable event' occurs with a trust. A chargeable event may include:

• a trust passing a ten-year anniversary
• assets being transferred out of a trust

Use form IHT100 Inheritance Tax Account to tell HMRC about a chargeable event and pay any tax due.

• Trusts and Inheritance Tax

• Form IHT100 Inheritance Tax Account and guidance notes Opens new window

Get professional help for your trust

Understanding trusts can be difficult so you may want to work with a solicitor or tax adviser. Remember though that the trustee is still legally responsible for the trust's tax affairs. You'll find some links below to professional organisations - although not all professionals are registered with them.

If you want HMRC to communicate with your agent or professional representative on Income Tax and Capital Gains Tax matters, you'll need to fill in form 64-8. Follow the link below to find out more about completing form 64-8.

If you want HMRC to communicate with your agent or professional representative on Inheritance Tax issues you'll need to enter their details on form IHT100.

• Find a solicitor on the Law Society of England and Wales website Opens new window

• Find a solicitor - the Law Society of Northern Ireland Opens new window

• Find a solicitor - the Law Society of Scotland Opens new window

• Help from the Society of Trust and Estate Practitioners (STEP) Opens new window

More useful links

• Completing form 64-8 Opens new window

• IHT100 - Inheritance Tax Account Opens new window

Useful contacts

• HMRC Trusts & Estates