TSEM8255 - Trust management expenses: accumulation/discretionary trusts: grossing up and order of set-off example

An accumulation/discretionary trust has income as follows:

Income	Amount	Net
Dividends	£900	net
Bank interest	£8,000	net (£2,000 tax deducted at source)
It has spent	£1,200	on allowable TMEs.

TMEs are set first against dividend income, and any excess against the savings income.

Dividends	Amount	Bank interest	Amount
Dividends gross	£1,000	bank interest gross	£10,000
less TMEs grossed\nup at dividend rate	-	-	-
(900 × 100) ÷ 90 =	£1,000	-	-
excess TMEs	(300)	excess TMEs grossed up at basic rate (300 × 100) ÷ 80 =	£375
-	-	-	£9,625

There is nothing chargeable at the dividend trust rate, as this income is covered by the grossed-up TMEs. The bank interest £10,000 is taxable:

Interest	tax rates	Total
£375	at basic rate due to TMEs	£75
£1,000	at basic rate due to standard rate band	£200
£8,625	at trust rate	£4,312.50
-	Total	£4,587.50

As this income has already suffered tax at the basic rate (20%) the further tax to pay is £2,587.50.