TRUSTS AND SETTLEMENTSTrustees are generally subject to income tax on trust income at the 25% basic rate for interest and possession trusts.

But dividends from shares attract the lower 20% rate under the advanced corporation tax procedure.

Trustees of discretionary or accumulation and maintenance trusts are taxable at the sum of the basic and additional rate, presently 35%.

Under self-assessment, trustees will be obliged to notify the Revenue of chargeability and to submit returns by the new filing dates.

They will also be able to self-assess.

Trustees will have to issue form R185 certificates to beneficiaries with details of income paid to beneficiaries and the tax paid or treated as paid.

BENEFICIARIESIn cases where a beneficiary is in receipt of taxable income the amount must be included in his or her own tax return and in his or her self-assessment where this method is chosen.

The form R185 provided by the trustees should contain sufficient information for this purpose.NON-RESIDENTS In the case of trusts where a non-resident beneficiary has an interest in possession, he or she will be regarded as receiving the income from its original sources, less trust management expenses.

If that income is excluded income as outlined in the article in [1996] Gazette, 3 July, 23 he or she will have no further tax liability.

otherwise the beneficiary will be charged at the higher rate in addition to the basic or lower rate.

In the case of discretionary trusts, a beneficiary is taxed not by reference to the original income sources, but rather under sched D, case III.

Since this is automatically excluded income, a beneficiary in receipt of income will have no further liability on the difference between the higher rate and the trust rate.

ESTATESUnder self-assessment there are a number of fundamental changes to the tax treatment of income from estates with which solicitors involved in private client and probate work must familiarise themselves.

As under the present system, during the administration period the income of the estate is, in the first instance, that of the personal representatives and assessable on them.

They will therefore be obliged to file tax returns and they may self-assess.

They will also now be required, if a written request is put to them, to provide beneficiaries with details of income paid to them and the amount of tax paid.

Although no time limits are specifically imposed, this information will have to be provided to beneficiaries in good time to enable them to meet the earlier filing date of 30 September.

These reporting provisions will have repercussions not only for solicitors who are, or act for, personal representatives, but also for those who act for ben eficiaries.

Solicitors who are personal representatives and who do not comply with the information requirements may lay themselves open to a claim for damages if their failure prevents a beneficiary from filing in time and is thus potentially liable to surcharge, interest and penalties.LEGATEES WITH LIMITED INTERESTS Limited interests in residue are those where the legatee has the right to income only and not to capital.

Under the old rules, a legatee was provisionally taxed on the grossed up equivalent of any payments made in a particular year of assessment during the administration period.

In all cases where the administration has not been completed by 5 April 1995 the position is simplified.

Any income which remains payable to the legatee on completion of the administration is deemed to be income of the year in which the administration is completed.

LEGATEES WITH ABSOLUTE INTERESTSA legatee with an absolute interest is one who, on completion of administration of the estate, could demand both capital and income from the estate.

The position of such a legatee is more complicated than that of one with limited interests because of capital entitlement.

Thus, it cannot be assumed that all payments are income.

Many payments during the administration period may be capital in nature.Under the new self-assessment rules, which apply to estates in administration after 5 April 1995, the basic rule is that any payment made is deemed to be income of the year of assessment in which it is paid, grossed up as appropriate.

But a payment is excluded to the extent to which it exceeds the legatee's overall income entitlement for that and all previous years, after deducting all previous payments of income.

if, in any year, deductions exceed income, the excess is carried forward to the following year.

on completion of the administration any income that remains payable to the beneficiary is treated as having been paid to him or her immediately before the end of the administration period.

In determining this balancing payment the new provisions only apply in respect of payments made after 5 April 1995.

amounts which are treated as the legatee's income for 1994/95, or any previous year under the old rules, will be treated as having been paid even if they are not actually paid in the year of assessment.

If there is a deficiency of income at the end of the administration period it is allocated to later years.

SUCCESSIVE INTERESTS IN RESIDUEThere are new provisions to cover the case of successive interests, such as those arising from the assignment or disclaimer of an interest, but not an interest arising from the death of a beneficiary.

In essence, a person actually in receipt of an income payment is taxed on that payment.