Commentary on Sections Overview Overview Section 508: Election by trustees
1514.This section provides that the trustees of an HMS may make an election for this section to have effect for a tax year. It is based on section 691(1), (2) and (4) of ICTA.
1515.The first effect of an election is that income of the HMS is not to be treated as income of the settlor, as it otherwise would be under Chapter 5 of Part 5 of ITTOIA. So such income will be taxed on the trustees and at trust rates.
1516.The second effect is that certain sums applied from the trust are not to be treated as income of the recipients.
1517.Subsection (4)(a) is concerned with any person who has an interest in, or occupies, the qualifying property in respect of which the sum is applied. One example is a sum applied in repairing qualifying property when the occupier is an employee not wholly exempted from the benefit of such expenditure by section 315 of ITEPA. Another example is a sum applied in reimbursing an expense of an owner or occupier (other than the settlor, see section 511) who is carrying on a trade in respect of the qualifying property.
1518.Subsection (4)(b) is concerned with section 633 of ITTOIA. Under that provision a capital sum paid to the settlor is taxable on the settlor as income. But if the sum is applied for a property maintenance purpose, the effect of the election is that the sum does not form part of the settlor’s income.
1519.The election is to be made to an officer of Revenue and Customs, rather than to the Commissioners for Her Majesty’s Revenue and Customs. See Change 5 in Annex 1.
1520.Accordingly, parts of section 691(4) of ICTA are no longer not necessary and are omitted. The election is one to which Schedule 1A to TMA applies, as it is not made on the trustees’ self-assessment tax return. So paragraph 2(1) of that Schedule is sufficient to ensure that the election is to be made to an officer of Revenue and Customs. And paragraph 2(3) of that Schedule is sufficient to ensure that it “shall be in such form as the Commissioners may require”.