TSEM8255 - Trust management expenses: accumulation/discretionary trusts: grossing up and order of set-off example
An accumulation/discretionary trust has income as follows:
|Dividends||£900||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 gross||£1,000||bank interest gross||£10,000|
|less TMEs grossed|
|up at dividend rate|
|(900 × 100) ÷ 90 =||£1,000|
|excess TMEs||(300)||excess TMEs grossed up at basic rate (300 × 100) ÷ 80 =||£375|
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:
|£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|
As this income has already suffered tax at the basic rate (20%) the further tax to pay is £2,587.50.