TSEM10250 - Non-resident trusts: trustees� chargeability: Income Tax - trust management expenses - apportionment to untaxed income
If the trustees of an accumulation/discretionary trust are not resident in the UK, trust management expenses are apportioned to arrive at those expenses which are met out of untaxed (foreign-source) income of the trustees and taxed (UK-source) income in accordance with ITA07/S487. It should also be noted that if the Income Tax charge on the income arising to the trustees is limited by virtue of ITA07/S811 (see TSEM10220) then the untaxed income also includes the income arising which is treated as disregarded income.
»Ê¹ÚÌåÓýapp balance of the trust management expenses is set against income chargeable at the special rates of tax, in the order detailed at TSEM8250.
Example
Non-resident trust which is within ITA07/S479.
Trust income for year 2013-14:
UK Bank Interest = £20,000. Income Tax deducted = £4,000
UK Property Income = £10,000. Income Tax paid = £2,000
Foreign Bank Interest = £1,000. Income Tax = NIL
Allowable trust management expenses = £5,000
»Ê¹ÚÌåÓýapp beneficiaries (income and capital) include at least one who is resident in the UK for the year 2013-14. Consequently, none of the UK income is ‘disregarded incomeâ€� (TSEM10215).
Income Tax due:
Income chargeable at the standard rate band (TSEM10240) -
UK Bank Interest = £1,000
Income chargeable at the special trust rate -
UK Bank Interest = £19,000 (£20,000 - £1,000)
UK Property Income = £10,000
Total = £29,000
Less trust management expenses* -£6,049
Chargeable at special trust rate = £22,951
* Trust management expenses are set against income to arrive at the amount chargeable to Income Tax at the special trust rate.
»Ê¹ÚÌåÓýapp expenses are reduced by the proportion of income arising to trustees which is untaxed foreign income (ITA07/S487(2)) -
UK Bank Interest = £20,000
UK Property Income = £10,000
Foreign Bank Interest = £1,000 (Untaxed)
Total income = £31,000
*Expenses relating to foreign bank interest:
(£1,000 x £5,000) ÷ £31,000 = £161
Expenses allowed in arriving at income chargeable to Income Tax at the special trust rate £4,839 (£5,000- £161).
Allowance due £6,049 (£4,839 grossed up by reference to basic rate on savings income - ITA07/S486(1) - Step 5) (TSEM8245).