Trust expenses
Trust expenses

The following Private Client guidance note provides comprehensive and up to date legal information covering:

  • Trust expenses
  • Tax deductible expenses
  • Trust management expenses (TMEs)
  • Beneficiaries' expenses

FORTHCOMING CHANGE: As originally announced at Autumn Budget 2017 and followed up by written statement after Spring Statement 2018, plus an announcement in Budget 2018, the government ran a consultation on the taxation of trusts from 7 November 2018 to 28 February 2019, inviting views on the principles of transparency, fairness and simplicity that it believes should underpin the taxation of trusts. In response, in July 2019, the Office of Tax Simplification issued its second report on inheritance tax. See also the report published by the All-Party Parliamentary Group for Inheritance & Intergenerational Fairness in January 2020 recommending the adoption of a new inheritance tax regime. See also the research exploring the use of trusts which was also published on 7 November 2018. See News Analysis: Exploring the consultation and review on the taxation of trusts.

This Practice Note outlines the rules governing expenses incurred by trustees running a trust.

Tax deductible expenses

As for individuals and trading organisations, expenses are deducted from certain categories of income to arrive at a taxable profit.

Where trustees are engaged in a trade, the trading profit is taxable as a source of income. Profits are calculated in accordance with generally accepted accounting practice. Expenses incurred 'wholly and exclusively' for the purposes of the trade are deducted from trading income. Mostly, it is clear which