HM Revenue & Customs v Peter Clay Discretionary Trust [2008] EWCA Civ 1441 (19 December 2008)

HM Revenue & Customs v Peter Clay Discretionary Trust [2008] EWCA Civ 1441 (19 December 2008)

Expenses incurred for the benefit of both income and capital beneficiaries must be charged to capital. However, where it can be shown that a part of an expense is incurred exclusively for the benefit of income beneficiaries (e.g., part of the executive trustee's fee), that part may be apportioned and charged to income. The fixed fee to non-executive trustees may also be apportioned if evidence supports that part of their work was exclusively for income beneficiaries. Investment management fees relating to accumulated income after a decision to accumulate are capital expenses.

Citation
[2008] EWCA Civ 1441
Parties
Appellant/respondent: Commissioners for H M Revenue & Customs; Respondent/appellant: Trustees of the Peter Clay Discretionary Trust
Jurisdiction
England and Wales
Judgment Date
19 December 2008
Procedural Posture
Civil Appeal / Court of Appeal (civil Division) on Appeal From High Court (chancery Division) and Special Commissioners of Income Tax
Outcome
Appeal allowed in part; order of 15 November 2007 set aside and varied.
Legal Topics
Attribution of Trustees' Expenses, Apportionment Between Income and Capital, Section 686 Income and Corporation Taxes Act 1988, Section 56 a Taxes Management Act 1970, Trustee Remuneration, Investment Management Fees
Tax Law Trusts Law Attribution of Trustees' Expenses Apportionment Between Income and Capital Section 686 Income and Corporation Taxes Act 1988 Section 56 a Taxes Management Act 1970 Trustee Remuneration Investment Management Fees

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Parties

Commissioners for H M Revenue & Customs

Appellant/respondent

Trustees of the Peter Clay Discretionary Trust

Respondent/appellant

Procedural Posture

Civil Appeal / Court of Appeal (civil Division) on Appeal From High Court (chancery Division) and Special Commissioners of Income Tax

Legal Issues

  1. 1 Whether certain trustees' expenses can be apportioned between income and capital for tax purposes under section 686(2AA) TA 1988
  2. 2 Whether fixed fees to non-executive trustees and investment management fees can be attributed in part to income

Ratio Decidendi

Expenses incurred for the benefit of both income and capital beneficiaries must be charged to capital. However, where it can be shown that a part of an expense is incurred exclusively for the benefit of income beneficiaries (e.g., part of the executive trustee's fee), that part may be apportioned and charged to income. The fixed fee to non-executive trustees may also be apportioned if evidence supports that part of their work was exclusively for income beneficiaries. Investment management fees relating to accumulated income after a decision to accumulate are capital expenses.

Court Disposition

Appeal allowed in part; order of 15 November 2007 set aside and varied.

Orders

  • Commissioners' appeal dismissed.
  • Trustees' cross-appeal allowed in relation to the fixed fee paid to the non-executive trustees but otherwise dismissed.