Payment of trust expenses by individual trustee

A query relating to payment of trust expenses - namely solicitors fees which have been settled by a trustee individually as opposed to being paid for from the trust. Does the fact the trustee has settled the solicitors invoices personally have any tax implications for either the trust or the individual trustee?

Many thanks

Megan Morgan
Lee Bolton Monier - Williams LLP

Hi Megan,

When i come across this situation, it can be because the trust has no liquid funds so I create a creditor in the accounts. If there are funds, I still do the same but instruct the trustee to refund themselves as it could otherwise create the risk of it being treated as a captial injection by the trustee. It can then be adjusted in the following year’s accounts.

Lucy Orrow CTA TEP
Lambert Chapman LLP

I agree the choice is to either treat it as a loan to the trust or as an addition. The tax consequences differ. In the latter case the generous trustee becomes a settlor for tax purposes. If he is already the settlor, it doesn’t matter - unless of course his domicile has changed since the original settlement! Otherwise, if the amount is not de minimis, the tax computations become more complicated.

Ray Magill

While a loan is the obvious solution to avoid the person who has paid the expenses being treated as a co-settlor of the trust for IHT purposes, with the corresponding issues for the individual in being potentially treated as making a chargeable lifetime transfer into trust, and for the trust itself to become muddied for future IHT charges, a further problem to consider is where the individual trustee paying the expenses is also a beneficiary of the trust. If this is the case, even where the payment is structured as a loan, consider whether any issues arise under s624 ITTOIA 2005 in making the trust settlor interested on the basis that they have indirectly provided property to the trust, wherein the whole of the income of the settlement may become taxable on the settlor in the future.

Duncan McGowan
Stevens & Bolton LLP

The contributor/beneficiary would not be charged on the whole of the trust income, only a proportionate share. S.644 applies where there is more than one settlor.

Ray Magill