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HMRC internal manual

Trusts, Settlements and Estates Manual

Trust management expenses: introduction: what are TMEs?

In managing a trust the trustees may incur expenses in the course of exercising their duties and powers. These are ‘trust management expenses’ (TMEs). TMEs are not like any other expenses for tax purposes.

There is a common misconception that TMEs are on a par with tax deductions for trading. Where a trust carries on a trade, the normal trading income rules apply to the computation of the profit/loss of that trade. In contrast, TMEs are expenses incurred in the capacity of trustee, not in any other capacity such as a trader. They are not related to the expenses or deductions of a trade or rental business. Even if a large trust is run like a business, for TMEs purposes the rules for allowable trading deductions are not in point. A separate set of principles, legislation and case law apply. The more common tax notions of ‘capital’ and ‘income’, e.g. construction of a new building versus repairs, do not apply. What is relevant is ‘capital’ and ‘income’ in trust law, which is completely separate.

The allowance of TMEs for tax purposes is based to a large extent on trust law.