Trust expenses

By Tolley

The following Trusts and Inheritance Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

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


This guidance note looks at the expenses incurred by trustees when 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 expenses relate to the trade and are therefore fully deductible, but some expenses will need to be apportioned. In the area of professional fees, for example, there is likely to be overlap and blending of the purposes for which they are incurred. An obvious example would be the accountancy fees for preparing the trade and trust accounts, particularly if the trading accounts are integrated into the trust accounts. The expenses of running a large trust may include office costs, which for the sake of convenience are combined with the office costs of the trade. The apportionment should be on a just and reasonable basis.

ITTOIA 2005, ss 25, 34

A more common source of income for trustees is rental income, where they hold investment property. The profits of a rental business are computed using the same principles as for a trade. Expenses directly deductible from the rental income are likely to include: insurance, water rates, estate agent fees, service charges, repairs, maintenance, and so on. See the Property income guidance note. Again, apportionment will be required with regard to accountancy fees and possibly other professional fees. For example, if legal costs are incurred in drawing up a tenancy agreement together with a resolution to apply the rental income to a beneficiary, the costs relating to the tenancy must be separated from

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