SolvedTSEM8255 | Trust management expenses: accumulation/discretionary trusts: grossing up and order of set-off example
From HM Revenue & Customs · Trusts, Settlements and Estates Manual
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.