Income Tax Act 2007 section 486

How allowable expenses are to be set against trust rate income

Section 486 sets out the step-by-step process trustees must follow to offset their allowable expenses against trust rate income, working through different categories of income in a specified order and grossing up expenses at the appropriate tax rate for each category.

• Allowable expenses must first be reduced by any proportion excluded under section 487 for non-UK resident trustees with untaxed income, before being allocated against trust rate income.
• Trust rate income is split into three categories — dividend income, savings income, and other income — and expenses are set against each category in that specific order of priority.
• Expenses are grossed up at the relevant tax rate for each income category (dividend ordinary rate for dividends, basic rate for savings and other income) before being set against that income, so the offset reflects the gross equivalent of the net expense.
• At each step, only the expenses not already used at a previous step are available, and if the grossed-up expenses exceed a particular category of income, only enough expenses to match that income are used before moving to the next category.