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HMRC internal manual

Capital Gains Manual

TCGA92/Sch4B - payment of ordinary trust expenses


Borrowing is applied for normal trust purposes if it is applied:

  • in meeting bona fide current expenses
  • on the administration of the settlement or any of the settled property.

Types of expenditure

The expression “administering the settlement or any of the settled property” should be interpreted widely. It includes expenses properly chargeable to income and expenses that would be chargeable to income but for the provisions of the trust deed.

It also includes capital expenditure such as capital taxes in the UK or elsewhere. For example, the Capital Gains Tax charge on the settlor under TCGA92/S86 or the 10 year periodic charge to IHT on a relevant property trust. It doesn’t matter if the liability falls on, and is met by, the settlor or beneficiaries and the trustees are reimbursing them. Other capital expenditure would include the legal costs of a reorganisation such as an application under the Variations of Trust Act 1958.

Allowable expenditure also includes contributions to the day to day running costs of a nominee company controlled by the trustees.

Meaning of ‘current’

‘Current’ doesn’t restrict the expenditure to amounts which have to be included in the accounting period for the year of borrowing. It would exclude borrowing to make a provision for future borrowing. If the expenditure is to reduce outstanding trustee borrowing it has to be applied before the transfer of value. See TCGA92/Sch4B/para5(2)(b)(i) and CG39140. If the borrowing is to meet future expenses which have not accrued before the transfer of value that is unlikely to meet the test that the borrowing has been applied.

In the case of payments on account there would be a liability to pay and the funds would have been applied. For example, payments to a flat management company or similar to meet future maintenance expenditure or payments under a maintenance contract for ordinary repairs.

Borrowing to meet expenditure that was incurred long before but left unpaid is not applied in meeting current expenses.