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HMRC internal manual

Trusts, Settlements and Estates Manual

Trust management expenses: IIP trusts: IIP beneficiaries: tax law: order of set-off: example

An IIP trust receives income in 2010-11: rental income £1,000 and bank interest £800 (basic rate tax of £200 has been deducted at source). Trustee pays TMEs properly chargeable to income of £250.

Trustee’s position

  Rent Interest
Gross income £1,000 £1,000
Tax due £200 £200
Net income £800 £800

The trustee receives credit for the tax deducted at source from the bank interest (£200) so has to pay £200 tax on the rent. TMEs do not affect the trustee’s position.

Beneficiary’s position

    Rent   interest
Net income (as above)   £800   £800
Minus TMEs (set first against savings income)       (£250)
    £800   £550
grossed up (@ 20%) £1,000 (@20%) £687.50