PIM1045 - Introduction: life interest trusts
Source: gov.uk (2025-06-09)


Life interest trusts

Where an interest in land is held in trust, you will need to establish who is carrying on the property business. It will normally be the trustees who carry on or enter into the transactions giving rise to the rental income. Hence, it will be the trustees who are carrying on the property business relating to land or property in their legal ownership and the trustees who pay the tax on the profits. The property business carried on by a trustee of this kind, with co-trustees, in their capacities as trustees, should include receipts and expenses from any other land or property relating to the same trust.

Rather less commonly the life tenant will probably carry on the property business where:

land is held in a strict settlement governed by the provisions of the Settled Land Act 1925, or

the trustees have delegated their powers of leasing and management etc to the life tenant as the beneficiary under Section 29 (1) Law of Property Act 1925, or

the trustees have, by power of attorney, delegated their powers of leasing, management etc. to the life tenant as the beneficiary under Section 9 of the Trusts of Land and Appointment of Trustees Act 1996.

This is because in these three cases it will be the life tenant:

who actually grants leases,

to whom rents (but not capital money) are paid, and

who meets the outgoings.

So the life tenant carries on the property business and pays the tax on it. In these circumstances, the property business carried on by the life tenant should also include receipts and expenses from any land or property that they own beneficially. That is, the life tenant should include both receipts and expenses from the trust and receipts and expenses from property they own directly.

Trusts and the settlor: losses

Various special provisions may apply to trusts and to those who set them up (the 'settlor'). In particular, there is a rule to prevent tax avoidance that can treat trust income as being, for tax purposes, the income of the settlor. Such income is taxed on the settlor under ITTOIA05/S619(1). Where the income is property income, the normal property income rules apply in calculating the income (ITTOIA05/S623).

The more common case is where the trustees carry on the property business but the settlor is caught by Section 619 (1). Under these circumstances the settlor can't set any trust property business losses against personal property business income.

Similarly the settlor cannot merge personal property business losses and the trust property business profits, which are deemed to be the settlor’s income and charged under Section 619(1). Thus:

Where the trustees have a property business loss and the settlor has a personal property business profit, the trust loss is carried forward and the settlor is taxed on their personal property business profit; the amount of the trustees' property business profit charged on the settlor in the following year under Section 619(1) will be reduced by the trust loss carried forward.

Where the trustees have a property business profit and the settlor has a personal property business loss, the settlor is taxed on the trust property business profit under Section 619(1); the settlor’s personal property business loss cannot be merged with the trust profit; but, as a separate matter, the settlor may in some cases be able to set a personal property business loss sideways against other income, including any Section 619(1) income deemed to arise from the trustees' property business; see PIM4220 (https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim4220).

The position is different where the taxpayer is:

the settlor, and

the life tenant, and

carries on the property business.

Under these circumstances the settlor can merge their personal property losses with the deemed income from the trust and vice versa.

HMRC colleagues should refer to Business, Assets and International (link is internal to HMRC) where agreement cannot be reached as to whether the life tenant or the trustees are carrying on the property business.