Trust management expenses: settlor-interested trusts: accumulation/discretionary trust
The settlor of a ‘settlor-interested’ accumulation/discretionary trust gets no relief for TMEs. ‘Income arising under a settlement’ in a settlor-interested trust is the gross income without the deduction for trust management expenses.
In computing the settlor’s liability the same deductions and reliefs are allowed as would be if the deemed income had actually been the settlor’s. But no trust management expenses are allowed over and above the normal deductions for each source of income.
For example, a settlor-interested accumulation/discretionary trust has income of £10,000 out of which TMEs of £800 are incurred. Including the standard rate band, the trustees will pay at 20% on £2,000 (SRB + grossed up TMEs) and 50% on the balance £8,000, a total of £4,400. A settlor chargeable at 40% on the gross £10,000 is liable for £4,000 with credit for the trustees’ tax, so is due repayment of £400. A settlor chargeable at 50% on the gross £10,000 is liable for £5,000 with credit for the trustees’ tax, so is due to pay an additional £600.