Chapter ID Trust management expenses

689A Disregard of expenses where beneficiary non-resident.

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.

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) 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) below before being set against income falling within subsection (3) below.

2

Income falls within this subsection if it is—

a

so much of the income of the trustees as is income the amount or value of which is determined in accordance with section 233(1A);

b

income which is treated as having arisen to the trustees by virtue of section 246D(4) or 249(6); or

c

income which is treated as received by the trustees by virtue of section 421(1)(a).

3

Income falls within this subsection if it is income to which section 1A applies but which does not fall within subsection (2) above.

4

This section has effect—

a

subject to sections 686(2A) and 689A, but

b

notwithstanding anything in section 1A(5) and (6).