Income Tax Act 2007 section 503

How beneficiary's income is reduced

Section 503 explains how trustees' expenses are deducted from a beneficiary's trust income for income tax purposes, including the order in which different types of income are reduced and the step-by-step calculation method.

• Trustees' expenses reduce a beneficiary's income in a set order: first UK dividends and related income, then other dividends, then savings income, and finally all other income.
• The reduction is calculated by stripping out the tax on each income component, deducting the available expenses, and then grossing the result back up at the relevant tax rate.
• Expenses already used against one type of income cannot be used again against another type — they are allocated on a first-come, first-served basis following the prescribed order.
• The end result of this process is the reduced amount of each component of the beneficiary's income for income tax purposes.