TSEM8150 | ' Trust management expenses: properly chargeable to income’ in general trust law: HMRC v Peter Clay: apportionment

The Court of Appeal decision in HMRC v Peter Clay establishes that if the trustees have not recorded income expenses separately, but they can identify an activity that relates exclusively to income beneficiaries, they may consider whether they can apportion a single expense or fixed fee.

The decision establishes that ‘apportionment is not based upon the general principle of achieving fairness between beneficiaries. Instead it is based upon the ability to demonstrate that part of the expense relates to the trustee’s duties to the income beneficiaries alone. That is, if it can be shown that an identified or identifiable part of an expense is for work carried out for the benefit of the income beneficiaries alone, then that part is properly chargeable to income.’

Following the Clay judgment, trustees have to consider carefully how they might justify any apportionment, depending on the circumstances of each case. Apportionment on the basis of time recorded for activities is acceptable. In the absence of time records, it will be difficult for the trustees to establish whether any (and, if any, what proportion) of the time of the trustees was spent addressing matters which were exclusively for the benefit of income. But that does not mean that, in the absence of time records, determination of that proportion will necessarily be imprecise: a realistic estimate can be made.