Clause 29 - Estates in administration and trusts

Part of Finance (No. 2) Bill – in a Public Bill Committee at 10:45 am on 16 May 2023.

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Photo of James Murray James Murray Shadow Financial Secretary (Treasury) 10:45, 16 May 2023

As we have heard from the Minister, clause 29 introduces schedule 2, which makes provisions relating to the taxation of estates in administration and trusts. We understand that the clause implements the Government’s response to the “Income tax: Low income trusts and estates” consultation conducted by HMRC between April and July 2022. The response was published at the time of the spring Budget. The clause seeks to legislate for an existing concession on the administration of tax for trusts and estates.

We will not oppose this measure, but I ask the Minister to address concerns raised by the Chartered Institute of Taxation about the impact of this clause on trusts. It believes that the legislation takes a practical approach on estates, which will benefit both the personal representatives of the deceased and their beneficiaries. However, it believes there is less simplification in respect of trusts with low incomes, and that for some people, the administrative burden will actually increase. The institute has concerns about the way that trust income is taxed in two stages. First, the trustees report the trust’s income and pay tax on it. Secondly, when income is distributed to beneficiaries, they must report the income and pay any tax that remains due after credit has been given for the tax that was taken at the first stage.

The Chartered Institute of Taxation draws attention to the fact that although a £500 threshold, like that for estates income, is applied to the income accruing to the trustees of a settlement, that does not exempt the income in the hands of the beneficiaries. Where trustees have no liability to report or pay, basic rate taxpayers will have to pay the basic rate tax due on their income from the trust. Currently, they may not be filing a tax return at all, as their basic rate liability will have been met by the tax deducted by the trustees; this measure may mean that they now have to file a tax return. I would welcome the Minister’s thoughts on that point, and would be grateful for a response to CIOT’s concern that this measure, while described as a simplification, could impact on often vulnerable beneficiaries receiving modest amounts of income, who will now have greater compliance burdens.