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HMRC internal manual

Trusts, Settlements and Estates Manual

Trust income and gains: beneficiaries: payment of personal expenses from income

Trustees may pay expenses that are the personal liability of a beneficiary. For example, a beneficiary may occupy a property belonging to the trust. The trustees could pay items that are the occupier’s responsibility, such as gas, electricity and telephone bills, rates or Council Tax (including business rates if appropriate).

Any income used to pay such expenses is a distribution in kind to the beneficiary in question, and is treated as such. The payment:

  • confers an income benefit on the beneficiary and
  • creates a charge on the trustees, of such a gross sum as after deduction of tax at the basic rate leaves a net amount equal to the expenses paid.

The trustees should give the beneficiary a form R185 (Trust Income). The income benefit conferred on the beneficiary is an annual payment. The grossed up expenses can give rise to liability on the trustees under ITA/S901.

The beneficiary’s occupation of trust property is an income benefit, equivalent to an entitlement to income, so the non-discretionary basis applies.

Tax cases

Tollemache (Lord) v CIR (11 TC 277), Sutton v CIR (14 TC 662), Miller (Lady) v CIR (15 TC 25)