Nature of expenses

The trustees of a discretionary trust claimed that their expenses in managing the trust should be apportioned between income and capital.

HMRC rejected the notion saying that only expenses relating wholly to income could be attributed to income; expenses which related partly to income and partly to capital should be charged wholly to capital.

The Special Commissioners had sided with the trustees but the High Court allowed HMRC’s subsequent appeal. The trustees appealed.

The court ruled that under general law only expenses which had been incurred exclusively for the benefit of the income beneficiaries could be charged against income.

Those relating both to income and capital had to be charged against capital.

However if professional fees incurred by trustees for accountancy services could be apportioned between fees attributable to dealing with the trust income and those attributable to dealing with capital the fees charged by...