TSEM8520 - Trust management expenses: settlor-interested trusts: IIP trust

The settlor of a 'settlor-interested' IIP trust gets no relief for TMEs. In ITTOIA/S624 ‘income which arises under a settlement’ in a settlor-interested trust is the income arising to the trustees, that is, the gross income before the trustees pay trust management expenses.

Where the settlor is a beneficiary of an IIP trust, he or she is liable to tax in the normal way as an IIP beneficiary, on the income after the trustees have paid expenses properly chargeable to income. However, ITTOIA/S624 deems all the income arising to the trustees to be the settlor's, so under ITTOIA/S624 the settlor is also taxable on the income used to meet the trust management expenses. HMRC help sheet HS270 explains this further.