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HMRC internal manual

Trusts, Settlements and Estates Manual

Trust management expenses: settlor-interested trusts: accumulation/discretionary trust: donation to charity

For periods to 5 April 2006 where the trustees of a settlor-interested accumulation/discretionary trust donate money to charity, that amount of income is taken out of the ‘settlor-interested’ treatment of ITTOIA/S619 etc. The amount is taxable instead on the trustees at the special trust rates.

Where the trustees have defrayed allowable trust management expenses, the TMEs are allowed proportionally against the income chargeable to the special trust rates. For example, if the trustees donate a quarter of the trust income to charity, a quarter of the allowable TMEs will be allowed against the trustees’ charge at the special trust rates. The other three quarters of the TMEs are not allowed against the settlor’s income.

For periods from 6 April 2006 ICTA88/S686(2)(b)(ii) has been repealed. The effect, carried through into ITA/S480(3), is that trustees are no longer exempt from the charge to special trust rates where the settlement is settlor-interested. However this does not affect the TMEs position. ITTOIA/S646A allows a proportional amount of allowable TMEs against any income taken out of the ‘settlor-interested’ treatment and taxed on the trustees instead because it is donated to charity.