The short answer to your question is yes. There is such a space, that of the locally smooth functions on $K$.
Let us recall that Schwartz defined the space of distributions with support in $K$ not directly by duality but by first defining the space of distributions on the line, then the notion of restriction of a distribution to an open set and finally the support of a distribution as the complement of the union of the open sets on which it vanishes. In parallel he defined the space of distributions of compact support as the dual of the Frechet space $C^\infty$ of smooth functions there. It is then a theorem that the two concepts coincide.
The answer to your question is rather more subtle. This can be seen in the simplest case, i.e., where $K$ is the origin in the real line. The space of distributions with support there is infinite dimensional--it consists of the linear combinations of the Dirac distribution and its derivatives. This can obviously not be the dual of a space of functions defined on a single point. It is, however, the dual of the space of germs of smooth functions at the origin, which is defined as the unioninductive of the spaces $C^\infty(]-\epsilon,\epsilon[)$ over positive $\epsilon$. As the parameter decreases to zero, these form an increasing system inductive system of Frechet spaces and its union can be given a lcs structure in the standard way as an inductive limit, i.e., provided with the finest such structure for which the corresponding injections are continuous. The dual of this space is then the space of distributions with support at the origin.
This can be extended to the general situation in the natural way. For a given compactum $K$ one considers the family {$C^\infty(U)$} of Frechet spaces indexed by the open neighbourhoods of $K$. This forms an inductive system and its inductive limit as above is by definition the space of functions which are locally smooth on $K$. Once again, its dual is the space of distributions with support in $K$.
There We remark that it is an abuse of notation to call these functions. They are in fact germs of functions, howevera concept familiar from differential topology. In order to avoid misunderstandings, I recall the definition: if $C$ is a closed set in a topological space, a catchgerm of a function on (and this$C$ is probably the reason why this approacha pair $(f,U)$ where $U$ is never used). The above lcs structurean open neighbourhood of $C$ and $f$ is a function defined on the space$U$. Two such germs $(f,U)$ and $(f_1,U_1)$ are identified if there is an open neighbourhood $U_2$ of locally$C$ contained in $U\cap U_1$ on which they agree. In our case, we have a compact set in a manifold and we consider only infinitely smooth functions is not Hausdorff. This is due toa concrete representation of the fact that there are non-zero smooth functions onset theoretical inductive limit of the line which vanish onabove system and so has a neighbourhood ofnatural lc structure by taking the originlimit in the sense of locally convex spaces. The situation This is analogue to the caseformal definition of the Banach the space of integrable functions. There are two ways out of the dilemma--one can live with the lack on $K$ (more precisely, germs of a separation property or one can quotient outfunctions on $K$) whose dual is the disturbing elements and work with equivalence classesspace of functions, rather thandistributions with functionssupport in $K$.
As a final remark, this approach works smoothly in the casecontext of complex analytic functions where the above phenomenon cannot occur. Thisit leads to the concept of the space of functions which are locally analytic on a closed subset of the complex plane. This was used by J. Sebastiao e Silva inKöthe in his work on duality in spaces of holomorphic functions from the 50´s, extending work of J. Sebastiao e Silva for the last centurydisc.