If your trust’s expenses are greater than its income it will generally have a loss for tax purposes. This is the trustee’s loss, and they can use it to reduce their taxable income in the next year or the preceding year under certain criteria.
A loss is incurred by the beneficiary when the trust property which made a loss already had vested with the beneficiary. This is not a loss for the trust and should not be reported under the trust.
Bright-line test for residential property
If a trust bought or acquired a residential property between 1 October 2015 and 28 March 2018 and then sold or transferred it within 2 years, any loss can only be offset against trustee net income from other residential property sales. The same applies for any residential property bought or acquired from 1 April 2018 onwards and then sold or transferred within 5 years.
You must keep a record of any excess deductions in case there is a taxable property sale in the future.
Loss carry forward
The trustee should disclose the loss and the amount claimed when they file an IR6 return the year after the loss was made. We will then tell the trustees how much of the loss they can carry forward. This is then entered in the IR6 return the next year, unless the trust has either:
- had an audit or made a voluntary disclosure changing the amount of loss available
- used part or all its loss to pay tax debts or shortfall penalties.
Losses can be carried forward by trusts from tax year to tax year until the loss is fully used or the trust is wound up.
Loss carry back
In certain circumstances a loss can be carried back in full or in part to the last income year.
COVID 19 Loss carry back scheme