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HMRC internal manual

Trusts, Settlements and Estates Manual

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HM Revenue & Customs
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Trust management expenses: ‘properly chargeable to income’ in general trust law: HMRC v Peter Clay: what should be charged to income

The Court of Appeal decision in HMRC v Peter Clay states that ‘under the general law, it is only those expenses which are incurred exclusively for the benefit of the income beneficiaries that may be charged against income.’ So if an expense benefits capital in any way, it cannot be charged to income.

The decision goes on to say ‘if it can be shown that an identified or identifiable part of an expense is for work carried out for the benefit of the income beneficiaries alone, then that part is properly chargeable to income.’

So the first step in charging against income is to identify an expense that has been incurred for the benefit of the income beneficiaries only, and that does not benefit capital.

If the trustees have recorded such expenses separately, they can easily be identified.