TSEM8140 | Trust management expenses: ‘properly chargeable to income’ in general trust law: HMRC v Peter Clay: what should be charged to capital

The Court of Appeal decision in HMRC v Peter Clay states that ‘It is common ground - and, if it were not, this Court would be bound by the authority of Carver v Duncan so to hold - that expenses which are (for the benefit of the whole estate) are to be charged against capital.’

Sir John Chadwick remarked that the Special Commissioners were wrong when they decided that ‘in the light of the general principle of fairness’, anything that is for the benefit of both the income and capital beneficiaries could be apportioned between income and capital.

He confirms the Carver v Duncan principle that ‘under the general law, expenses incurred for the benefit of both the income and capital beneficiaries must be charged against capital’.

So any expense that benefits both capital and income should be charged wholly against capital, and cannot be apportioned in any way.