How does the FOTRA exemption apply when securities are held on trust under section 715 ITTOIA 2005?

Section 715 provides that when a FOTRA security is held on trust, the interest is treated as exempt from income tax provided that none of the trust's beneficiaries is UK resident in the tax year in which the interest arises. The security is deemed to be beneficially owned by a non-UK resident person.

Who counts as a beneficiary for the purposes of the FOTRA trust exemption?

The definition is deliberately broad. It includes anyone known to the trustees who is or may become entitled to trust income, or for whose benefit trust income may be paid or applied. This covers discretionary beneficiaries with no fixed entitlement. If any one such person is UK resident, the exemption will not apply.

What happens if one trust beneficiary becomes UK resident during the tax year?

If any beneficiary of the trust is UK resident during the tax year in which the interest arises, the assumption that the FOTRA security is beneficially owned by a non-UK resident does not apply. The interest therefore does not qualify for exemption and income tax is due on the full amount of interest received.

Does capitalised trust income affect the FOTRA exemption under section 715?

Yes. Section 715 clarifies that trust income includes property treated as capital to the extent it represents amounts received by the trustees as income. This prevents the exemption from being obtained simply by accumulating and capitalising income within the trust rather than distributing it to beneficiaries.

Income Tax (Trading and Other Income) Act 2005 section 715

Interest from FOTRA securities held on trust

Section 715 deals with how the tax exemption for FOTRA (Free of Tax to Residents Abroad) securities applies when such securities are held on trust rather than owned directly by an individual.

Where a FOTRA security is held on trust and would not normally qualify for the section 714 exemption because it is not beneficially owned by a non-UK resident, special rules apply
The interest on the security is treated as exempt if none of the trust's beneficiaries is UK resident in the tax year in which the interest arises
Beneficiaries include anyone known to the trustees who is or may become entitled to trust income, or for whose benefit trust income may be paid or applied
Trust income for this purpose includes trust property treated as capital to the extent it represents amounts received by the trustees as income

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