Income tax – trustees’ expenses

Trustees income is subject to an additional charge, over and above that levied at the basic rate. The legislation, s686 Taxes Act 1988, confirms that a deduction may be made from the amount charged at the additional rate, for trustees expenses. The expenses able to be deducted in this way have to be deductible from income under general trust law rather than as the trust instrument may permit. The sting in the tail is that general trust law usually requires expenses to be met from capital, rather than income. Section 686 Taxes Act 1988 is therefore less generous than it seems. The limits were unsuccessfully challenged by the taxpayer in HMRC v Trustees of the Peter Clay Discretionary Settlement.