Discretionary payments from offshore trusts

A recent judicial review case (Murphy v HMRC [2021] EWHC 1914 Admin, 13 July 2021) confirmed HMRC's view that UK resident beneficiaries who receive discretionary income payments from offshore trusts can only claim relief for income tax paid by the trustees on income that arose in the 6 years before the end of the tax year in which the payment to the beneficiary was made.

The decision turned on the interpretation of an extra statutory concession (ESC18) which concerns the income tax credit available on discretionary payments out of both UK and non-UK resident trusts. The taxpayer had argued that the concession did not impose a time limit on UK residents but the decision confirms that payments to a UK resident from a non-UK trust are subject to the same 6 year time limit for claiming credit for income tax already paid, as applies to non-UK resident beneficiaries of a UK trust. The decision also shines a spotlight on the authority of HMRC concessions, emphasising that they can only be relied upon if they are absolutely clear in scope.