Apportion expenses

The trustees of a large UK resident discretionary trust which was one of six family trusts tried to deduct certain management expenses as being chargeable to the income of the trust under TA 1988 s 686(2AA). They claimed that some expenses related both to income and to capital. HMRC did not allow the claim so the trustees appealed.

The issue before the Special Commissioners was whether a single charge for management expenses could be attributed between income and capital elements when it covered different work in relation to each element.
The Commissioners said that the general principle was to reach a fair balance between income beneficiaries and capital beneficiaries. The Trustee Act 1925 s 22(4) showed that audit expenses could be attributed between income and capital presumably on the basis that different work was carried out on the income and expenditure account...