Interest & Penalties paid to HMRC deductible from Relevant income pool?

I was wondering if someone could clarify this point.

I am working on calculating relevant income pool for an offshore trust.
The trust has direct Uk source income, so it pays UK tax on UK Divs/Interest.
They initially did not do so, therefore a disclosure was made to HMRC and all outstanding UK tax paid from 2001 to 2014/15. Since it was paid late, HMRC has charged interest and penalties.

My question is, in calculating the RI pool, can is the interest & penalties reduce the RI pool?

So far the RI pool has been reduced by income expenses, tax paid on the UK income and Income distributions to beneficiaries.

Sameera Nathoo

The only guidance on the issue re relevant income of which I am aware states:

"In considering whether any part of the income has been genuinely paid away in a manner such as it could not be regarded as income that can be used for providing a benefit, there are three broad categories of disbursements that will generally be taken into account:-

income genuinely paid away in meeting legitimate expenses;
income distributions paid out of income;
taxes paid by the person abroad out of income. "

Suspect neither the interest/penalties reduce the amount of RI.

Malcolm Finney

Hi Malcolm.

Thank you for the reply.

Yesterday, I also asked this question to a tax barrister that I work with. He simply gave me the following reply:

Yes, when carrying forward for future. The definition of RI is, effectively, ‘what is now available’.

I do trust his answer and no reason at all to doubt it as he has extensive experience in this area.

Although it does not fall into the broad categories, It seems to me that payment of interest and penalties can be regarded as ’ income paid away away in a manner such as it could not be regarded as income that can be used for providing a benefit’.

What do you think?

Sameera Nathoo