Reclaiming Tax on Investments

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On Thu, 23 Apr 2015 13:50:32 +0100, thescullster wrote:

You'd do it via an R40 or self-assessment for the tax year. You can, IIRC, go back six tax years if there's been errors or omissions.
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Adrian wrote:

Time limits changed quite a bit a few years ago to give, in most cases, 4 years in which to claim back tax. For people who don't make a tax return a claim has to be made within 4 years from the end of the relevant tax year. More at https://www.gov.uk/apply-tax-free-interest-on-savings/how-much-tax-you-pay
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On 23/04/2015 14:51, Robin wrote:

Thanks Robin/Adrian
This question relates to applications on behalf of my "children" - ages 22 and 19.
My parents left them some money each in a trust fund. It is the interest on these funds that I am looking to reclaim for them. They are not aware of these funds or their value and I intend to keep it that way until they have a right to the capital.
So I have got each to sign an R40 and intend to fill in and submit on their behalf.
Are there any "holes" or pitfalls to this? Will they end up being sent tax returns every year?
Many thanks
Phil
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On 24/04/15 14:56, thescullster wrote:

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If the trusts are bare trusts, I think you are legally obliged to provide them with details of interest and tax paid.
I'm not sure if a trust that can only be accessed after a certain age can be a bare trust, and I also suspect lawyers wouldn't create them that way, even if they could. In that case, the trust would have a tax life of its own and you wouldn't be able to offset the interest against their tax free allowance. In fact, you may find the trust has to pay extra tax to bring the rate up to 45%.
Looking at <https://www.gov.uk/trusts-taxes/types-of-trust , if the trust is a bare trust, you have already lost control of it, as they are both over 18. In my view it would be illegal to hide knowledge of an asset to which they are absolutely entitled and on which they are potentially liable to pay income tax.
I'd therefore say that this is discretionary or accumulation trust and therefore the trust should be paying tax at 20% on the first £1,000 of
interest and 45% on the remainder <https://www.gov.uk/trusts-taxes/trusts-and-income-tax . That is not recoverable against the children's tax free allowances. You should be filling in a trusts and estates tax return each year. HRMC do not support this on their web site. You will have to use commercial software, or the paper forms.
I'd suggest an urgent call to HMRC trusts <http://webarchive.nationalarchives.gov.uk/+/http://www.hmrc.gov.uk/trust s/introduction.htm#6a> to clarify the tax status and sort out any back tax is called for.
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thescullster wrote:

Much depends on what you mean by "in a trust fund". But so far I am a bit lost.
If you mean the money is in a "bare trust" for your children then the income is indeed their income and - unless they have lots of other income - they can claim the tax back. But it also (probably) means they are entitled to the money and the trustees have been seriously naughty in concealing it from them.
OTOH if you mean a trust where the children don't "own" the money until they are, say, 25 (often called accumulation and maintenance trusts) then the income is not their income. It is the trustees' income. And the trustees don't have a personal allowance so they can't claim back tax deducted at the standard rate. And they have to pay more tax if the income's over ?1,000 a year. And may incur IHT charges.
On the third hand you may mean the money is invested in some sort of fixed term investment fund which means the income is their income for tax purposes but they can't just cash it in. In that case R40s look to be the right way to go. But, again, I don't see how the existence of the money has been lawfully concealed from them. Let alone how you can lawfully withhold from them the repayments.
None of this may be an issue in practice but you did mention "holes" ..........
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On Fri, 24 Apr 2015 14:56:28 +0100, thescullster wrote:

Huge! As the others have said, it really isn't that simple - either the money is theirs now, in which case it's their income and tax; or it isn't their money yet, in which case it isn't their income yet either, so they can't reclaim tax on it.
You need professional advice, quickly.
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On Fri, 24 Apr 2015 14:56:28 +0100, thescullster wrote:

Huge! As the others have said, it really isn't that simple - either the money is theirs now, in which case it's their income and tax; or it isn't their money yet, in which case it isn't their income yet either, so they can't reclaim tax on it.
You need professional advice, quickly.
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TheChief wrote:

Yep, sounds OK for an "interest in possession" trust set up for minors (by someone other than their parents). Lawyers churn out different flavours of trusts like Ben & Jerry so I was only hitting the main ones.
My point remains that the children should then receive or have access to the interest and tax repayments. And you cannot really "submit on their behalf" a claim for tax back - absent powers of attorney etc they are the only ones who can make a valid claim. But manifestly it's up to you.
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On 25/04/15 23:12, Robin wrote:

I would assume that, if the interest were not rendered to them immediately, it would become an accumulation trust. (I assume that that change is not possible, so the interest has to be given now.)

I suspect what was going through his mind was how much tax they could reclaim when they were informed of the trust, rather than how much the trustee can reclaim on their behalf.
I think, though, that he is trying impose terms that weren't in the original trust.
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TheChief wrote:

No. The whole R40 process is designed to avoid non-taxpayers with interest having to make a tax return.
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On Sun, 26 Apr 2015 08:49:14 +0100, Robin wrote:

And what happenned to R85, which used to tell providers not to collect tax but is now obsolete?
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On 26/04/15 12:58, mechanic wrote:

R85 was best for people who would never pay tax. R40 covered people whose earned income was too low to tax and otherwise had simple tax affairs resulting in overpayment of tax. Using R85 for someone who might be subject to more tax in future was dangerous, because, if they needed the simplicity, there is a good chance they would fail to notify HMRC and the error would be in their favour, so HMRC could come down hard on them.
At least before the move to encouraging electronic submission, a simplified tax return was introduced.
In any case, if these children are intelligent enough to be in college, they should have no difficulty in finding the interest with tax at source section of a full tax return.
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mechanic wrote:

I took it as implicit that it was too late now for R85s as the OP asked about claiming back tax deducted. But yes, R85s were designed to do the same thing *plus* give the saver the interest gross, without the bother and cost of a free loan to the Exchequer.
But I am puzzled by your "is now obsolete". Not still available and effective for 2015-16? (See <https://www.gov.uk/government/publications/income-tax-get-interest-without-tax-taken-off-R85-from-6-April-2015 )
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On Sun, 26 Apr 2015 14:27:35 +0100, Robin wrote:

I was going by https://www.gov.uk/government/publications/income-tax-getting-your-interest-without-tax-taken-off-r85 - which says (in part): "Income Tax: get interest without tax taken off (R85) (until 5 April 2015) This publication was archived on 8 April 2015
This form is no longer valid as of 6 April 2015."
-Perhaps is just the form has changed.
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On 27/04/15 18:31, mechanic wrote:

On the other hand, from next year, banks aren't going to take off interest at all.
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On Mon, 27 Apr 2015 19:50:34 +0100, David Woolley

The legislation for this isn't in the 2015 Finance Act. It is intended to be in the 2016 Finance Act. If the Tories get in that is!
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brightside S9

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brightside S9 wrote:

Which is why there is a form R85 for 2015-16. It is indeed different from that for earlier years but HMRC change forms from time to time for various reasons and I strongly suspect this change had nothing to do with the Budget proposal.
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David Woolley wrote:

Oh I see - R40s piled up ready to send in later

In other words "breach of trust", no?
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Robin
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On 26/04/2015 08:58, Robin wrote:

Not sure about that one!
The will, according to the solicitor, stipulates that they have no right to the capital but must be paid any interest that accrues. The interest payment is set up to pay automatically from the investment(s).
As the trustee, it was my decision not to tell the children about the capital and present the interest payment as an allowance. The amount of capital is significant and I didn't want their life focus distracted by the sum involved (IYSWIM).
So my intention was and is to pay them interest and claim tax back where applicable until the older one reaches 25 (and the younger 23) and then surprise them with the windfall. I have asked each of them to sign a blank R40 for this purpose. I am keeping an eye on them and may alter this covert strategy if it seems pertinent.
Thanks to all for your help and insight
Phil
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