[F1Chapter IDU.K. Trust management expenses
Textual Amendments
F1Pt. 15 Ch. 1D (ss. 689A, 689B) inserted (with effect in accordance with Sch. 6 para. 28 of the amending Act) by Finance Act 1996 (c. 8), Sch. 6 para. 16
689A Disregard of expenses where beneficiary non-resident.U.K.
(1)This section applies where—
(a)there is income (“the distributed income”) arising to trustees in any year of assessment which (before being distributed) is income of a person (“the beneficiary”) other than the trustees;
(b)the trustees have any expenses in that year (“the management expenses”) which are properly chargeable to that income or would be so chargeable but for any express provisions of the trust; and
(c)the beneficiary is not liable to income tax on an amount of the distributed income (“the untaxed income”) by reason wholly or partly of—
(i)his not having been resident in the United Kingdom, or
(ii)his being deemed under any arrangements under section 788, or any arrangements having effect by virtue of that section, to have been resident in a territory outside the United Kingdom.
(2)Where this section applies, there shall be disregarded in computing the income of the beneficiary for the purposes of the Income Tax Acts such part of the management expenses as bears the same proportion to all those expenses as the untaxed income bears to the distributed income.
(3)For the purpose of computing the proportion mentioned in subsection (2) above, the amounts of the distributed income and of the untaxed income shall not, in either case, include so much (if any) of the income as is equal to the amount of income tax, or of any foreign tax, chargeable on the trustees (by way of deduction or otherwise) in respect of that income.
(4)In subsection (3) above, “foreign tax” means any tax which is—
(a)of a similar character to income tax; and
(b)imposed by the laws of a territory outside the United Kingdom.
(5)For the purposes of this section, where the income tax chargeable on any person is limited in accordance with section 128 of the M1Finance Act 1995 (limit on income chargeable on non-residents), the income of that person on which he is not liable to tax by reason of not having been resident in the United Kingdom shall be taken to include so much of any income of his as—
(a)is excluded income within the meaning of that section; and
(b)is not income which is treated for the purposes of subsection (1)(b) of that section as income the tax on which is deducted at source.
689B Order in which expenses to be set against income.U.K.
(1)The expenses of any trustees in any year of assessment, so far as they are properly chargeable to income (or would be so chargeable but for any express provisions of the trust), shall be treated—
(a)as set against so much (if any) of any income as is income falling within subsection (2) [F2, (2A)] or (3) below before being set against other income; and
(b)as set against so much (if any) of any income as is income falling within subsection (2) [F3or (2A)] below before being set against income falling within subsection (3) below; [F4 and
(c)as set against so much (if any) of any income as is income falling within subsection (2) below before being set against income falling within subsection (2A) below].
(2)Income falls within this subsection if it is—]
[F5(a)so much of the income of the trustees as is income chargeable under Chapter 3 of Part 4 of ITTOIA 2005 (dividends etc. from UK resident companies etc.);
(b)income treated as arising to the trustees under Chapter 5 of that Part (stock dividends from UK resident companies); or
(c)income chargeable under Chapter 6 of that Part (release of loan to participator in close company).]
[F6(2A)Income falls within this subsection if it is [F7—
(a)income chargeable under Chapter 4 of Part 4 of ITTOIA 2005 (dividends from non-UK resident companies); or
(b)a relevant foreign distribution chargeable under Chapter 8 of Part 5 of that Act (income not otherwise charged).]]
[F8(2B)In subsection (2A) “relevant foreign distribution” means any distribution of a company not resident in the United Kingdom which—
(a)is not chargeable under Chapter 4 of Part 4 of ITTOIA 2005, but
(b)would be chargeable under Chapter 3 of that Part if the company were resident in the United Kingdom.]
(3)Income falls within this subsection if it is income to which section 1A applies but which does not fall within subsection (2) [F9or (2A)] above.
(4)This section has effect—
(a)subject to sections 686(2A) and 689A, but
(b)notwithstanding anything in section 1A(5) and (6).
Textual Amendments
F2Words in s. 689B(1)(a) inserted (with effect in accordance with Sch. 4 para. 16(6) of the amending Act) by Finance (No. 2) Act 1997 (c. 58), Sch. 4 para. 16(2)(a)
F3Words in s. 689B(1)(b) inserted (with effect in accordance with Sch. 4 para. 16(6) of the amending Act) by Finance (No. 2) Act 1997 (c. 58), Sch. 4 para. 16(2)(b)
F4S. 689B(1)(c) and preceding word added (with effect in accordance with Sch. 4 para. 16(6) of the amending Act) by Finance (No. 2) Act 1997 (c. 58), Sch. 4 para. 16(2)(c)
F5S. 689B(2)(a)-(c) substituted for s. 689(2)(za)-(c) (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 280(2) (with Sch. 2)
F6S. 689B(2A) inserted (with effect in accordance with Sch. 4 para. 16(6) of the amending Act) by Finance (No. 2) Act 1997 (c. 58), Sch. 4 para. 16(4)
F7S. 689B(2A)(a)(b) substituted for words in s. 689(2A) (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 280(3) (with Sch. 2)
F8S. 689B(2B) inserted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 280(4) (with Sch. 2)
F9Words in s. 689B(3) inserted (with effect in accordance with Sch. 4 para. 16(6) of the amending Act) by Finance (No. 2) Act 1997 (c. 58), Sch. 4 para. 16(5)