Section 500: Restrictions on use of trustees’ expenses to reduce the beneficiary’s income
1470.This section sets out restrictions which apply in arriving at the amount of the trustees’ expenses which are to be taken into account in measuring a beneficiary’s income. It is new.
1471.Subsection (1) provides that expenses may be taken into account if they are incurred in the current tax year or an earlier tax year and are chargeable to a beneficiary’s income in accordance with the following subsections. The critical issue is not in which year the expense is incurred, but in which year the beneficiary’s income is reduced by reference to the expense. See Change 91 in Annex 1.
1472.Subsections (2) and (3) provide that the expenses must either be chargeable to income under a term of the settlement (subject to any overriding law) or, if the deed contains no such term, they must be chargeable to income under trust law (subject to any overriding term of the settlement). See Change 91 in Annex 1.
1473.Subsection (4) makes it explicit that expenses cannot be used to reduce the beneficiary’s income if they have been or will be taken into account in calculating the trustees’ liability to income tax for any tax year.
