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HMRC internal manual

Trusts, Settlements and Estates Manual

Trust management expenses: bare trusts: exception

Exceptionally, the trustees may have, as a matter of statute law, a charge, lien or other right to resort to the assets (for example for the payment of Estate Duty, Capital Transfer Tax, Inheritance Tax, Capital Gains Tax etc).

If the trustees have a statutory lien over the funds held on bare trust, then because the fund cannot be said to be absolutely the beneficiary’s, the position reverts to an IIP trust. Although in a bare trust there is no concept of ‘properly chargeable to income’, if the trust becomes an IIP trust, those expenses which would be properly chargeable to income in an IIP trust will be treated as ‘properly chargeable to income’.

So for the purposes of higher rate tax, and only as long as the lien etc. exists, the expenses that the trustees incur, that are properly payable out of income reduce the income that the beneficiary declares.