643D Reduction in section 643A income: previous capital gains tax charge
(1) Subsection (2) applies if—
(a) in the case of a settlement, benefits provided to an individual as mentioned at Step 1 in section 643B(1) are received in a tax year, and
(b) chargeable gains are treated by section 87, 87K, 87L or 89(2) of, or paragraph 8 of Schedule 4C to, TCGA 1992 as accruing to a person in that or a subsequent tax year by reference (direct or indirect) to the whole or part of any benefits so provided.
(2) In the calculation under section 643B of the individual's untaxed benefits total for the settlement for any tax year after the one in which such chargeable gains are so treated, the amounts to be deducted at Step 3(d) of that calculation include the amount of those gains.
(3) References in this section to chargeable gains treated as accruing to an individual include offshore gains treated as arising to the individual (see regulations 20 and 22 to 24 of the Offshore Funds (Tax) Regulations 2009 (S.I. 2009/3001)).
643E Reimbursement of tax paid by settlor because of section 643B(2)
(1) Where any tax for which the settlor of a settlement is liable as a result of section 643B(2) (benefit received by close family member attributed to settlor) is paid, the settlor is entitled to recover the amount of the tax from the individual concerned.
(2) For the purpose of recovering that amount, the settlor is entitled to require an officer of Revenue and Customs to give the settlor a certificate specifying—
(a) the tax year in which income is treated under section 643A as arising to the settlor,
(b) the amount of income treated as arising, and
(c) the amount of tax paid,
and any such certificate is conclusive evidence of the facts stated in it.
643EA Onward gifts from non-residents or qualifying new residents
(1) Subsection (2) applies if—
(a) the trustees of a settlement provide a benefit (“the original benefit”) to an individual (“the original recipient”),
(b) the original recipient—
(i) is liable neither to income tax nor to capital gains tax by reference to the amount or value of the original benefit, or
(ii) is a qualifying new resident for the tax year in which the original benefit is provided,
(c) section 643B(2) (close family member’s benefits attributed to settlor) does not apply to the provision of the original benefit to the original recipient,
(d) at the time when the original benefit is provided—
(i) there are arrangements, or an intention, as regards the (direct or indirect) passing on of the whole or part of the original benefit to another person, and
(ii) it is reasonable to expect that, if the whole or part of the original benefit is passed on to another person in accordance with the arrangements or intention, that other person will be UK resident when they receive at least part of what is passed on to them,
(e) the original recipient provides a benefit (“the onward gift”) to another person (“the subsequent recipient”)—
(i) at the time when the original benefit is provided to the original recipient, or at any later time in the 3 years beginning with the day containing that time, or
(ii) at any time before the original benefit is provided to the original recipient and, it is reasonable to assume, in anticipation of the original benefit’s being provided,
(f) the onward gift is of or includes—
(i) the whole or part of the original benefit,
(ii) anything that (wholly or in part, and directly or indirectly) derives from, or represents, the whole or part of the original benefit, or
(iii) any other property, but only if the original benefit is provided with a view to enabling or facilitating, or otherwise in connection with, the property’s being provided to the subsequent recipient, and
(g) the subsequent recipient—
(i) is the settlor, or
(ii) is a close member of the settlor's family at the time when they receive the onward gift or, where the onward gift is provided as mentioned in subsection (1)(e)(ii), at the time given by subsection (4).
(2) So much of the onward gift as falls within subsection (1)(f) is treated for the purposes of section 643B(1) and (2)(a) as a benefit provided by the trustees to the subsequent recipient at the time when the onward gift is provided.
(3) For the purposes of subsection (1)(e), the circumstances in which the original recipient provides a benefit to the subsequent recipient include circumstances where there is a series of two or more benefits starting with a benefit provided by the original recipient and ending with a benefit provided to the subsequent recipient; and in such a case—
(a) the onward gift is treated for the purposes of subsection (1)(e) as provided when the final benefit in the series is provided, and
(b) the reference to the onward gift in subsection (1)(f) is to be read as a reference to each benefit in the series.
(4) Where the onward gift is made as mentioned in subsection (1)(e)(ii), it is treated for the purposes of subsection (2) as made immediately after, and in the tax year in which, the original benefit is provided to the original recipient.
(5) Where the conditions in subsection (1)(e) to (g) are met in any case, it is to be presumed (unless the contrary is shown) that the condition in subsection (1)(d) is also met in that case.
(6) Where the original recipient is liable neither to income tax nor to capital gains tax by reference to the amount or value of part only of the original benefit, this section applies as if the two parts of the original benefit were separate benefits.
(7) In this section, “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable).
643F Income attributed by section 643A to user of remittance basis
(1) This section applies where—
(a) in the case of a settlement, income (“the deemed income”) was treated by section 643A as arising to an individual for any of the tax years 2018-19 to 2024-25, and
(b) section 809B, 809D or 809E of ITA 2007 (remittance basis) applied to the individual for that year.
(2) The deemed income is treated as relevant foreign income of the individual.
(3) In the application of section 832 to the deemed income, subsection (2) of that section has effect with the omission of paragraph (b).
(4) For the purposes of Chapter A1 of Part 14 of ITA 2007 (remittance basis) treat a benefit, or any protected income, that relates to any part of the deemed income as deriving from that part of the deemed income.
(5) In subsection (4) “relates” has the meaning given by section 643G.
(6) In this section and section 643G—
“protected income” means the income that under section 643C formed PFSI in the calculation of the settlement's available protected income in the case of the relevant individual for the year, and
“the relevant individual”—
where the deemed income was treated as income of an individual by section 643A(1)(a) both before and after the application of section 643A(3) and (4), means that individual, and
where the deemed income was treated as income of the settlor by section 643A(3) or (4) after having been treated as income of another individual by section 643A(1), means that other individual.
(7) A reference in this section to section 643A or 643C (or to any provision of that section) is to that section (or provision) as it had effect for the tax year in which the deemed income was treated as arising to the individual.
643G Section 643F(4): benefits and income “relating” to deemed income
(1) In this section—
(a) references to a step are to a step under section 643B(1) as it applied in the case of the settlement, the year and the relevant individual,
(aa) references to section 643A, 643J or 643L (or to a provision of any of those sections) are to that section (or provision) as it had effect for the year,
(b) “protected income” and “the relevant individual” have the meaning given by section 643F(6), and
(c) “the settlement” and “the year” mean, respectively, the settlement and tax year mentioned in section 643F.
(2) For the purposes of section 643F(4)—
(a) place the benefits identified at Step 1 in the order in which they were received by the relevant individual (starting with the earliest benefit received),
(b) where a deduction was allowed by any of paragraphs (a), (c) and (d) of Step 3 by reference to the whole or part of any of those benefits, reduce the benefit by the amount of the deduction,
(c) place the protected income in the order in which it arose (starting with the earliest income to arise),
(d) where the whole or part of an item of the protected income was, in respect of benefits provided by the trustees in the year or in any earlier tax year, taken into account in charging income tax under Chapter 2 of Part 13 of ITA 2007 (transfer of assets abroad) for the year or any earlier tax year, reduce the item by so much of itself as was so taken into account,
(e) where the whole or part of an item of the protected income was, by reference to benefits provided by the trustees to individuals other than the relevant individual, treated by section 643A or 643J or 643L as income for the year or any earlier tax year, reduce the item by so much of itself as was so treated,”
(f) place the income treated by section 643A(1) (before the application of section 643A(3) and (4)) as arising to the relevant individual in respect of the benefits referred to in paragraph (a) in the order in which it was treated as arising (starting with the earliest income treated as having arisen), and
(g) treat the income mentioned in paragraph (f) as related to—
(i) the benefits referred to in paragraph (a), and
(ii) the protected income,
by matching the income mentioned in paragraph (f) with those benefits and the protected income (in the orders mentioned in paragraphs (a), (c) and (f)).
(3) For the purposes of subsection (2)(d), the whole or part of an item of the protected income is to be treated as taken into account in respect of a benefit so far as the item or part—
(a) is matched under section 735A of ITA 2007 with notional income with which the benefit is matched under that section, or
(b) would be matched under that section (if it applied also for this purpose) with notional income with which the benefit would be matched under that section (if it applied also for this purpose),
and here “notional income” means income which is treated as arising under section 732 of ITA 2007.
643H Meaning of close member of settlor's family in sections 643A to 643EA
(1) For the purposes of sections 643A to 643EA, a person is a close member of the family of the settlor of a settlement at any time if the settlor is living at that time and—
(a) the person is the settlor's spouse or civil partner at that time, or
(b) the person—
(i) is a child of the settlor, or of a person who at that time is the settlor's spouse or civil partner, and
(ii) at that time has not reached the age of 18.
(2) For the purposes of subsection (1), two people living together as if they were a married couple or civil partners are treated as if they were spouses or civil partners of each other.
643N Person liable under section 643J or 643L and remittance basis applied
(1) This section applies in relation to income if—
(a) the income was treated as arising to an individual for the tax year 2024-25 or an earlier tax year—
(i) by section 643J(3) and (4) where section 643J(3) applied because of section 643J(2), or
(ii) by section 643L, and
(b) section 809B, 809D or 809E of ITA 2007 (remittance basis) applied to the individual for that year.
(2) The income is treated as relevant foreign income of the individual.
(3) For the purposes of Chapter A1 of Part 14 of ITA 2007 (remittance basis) treat the onward payment referred to in section 643I(1)(d), or (as the case may be) the part of it whose amount or value is equal to the amount of the income, as deriving from the income.
(4) In the application of section 832 in relation to the income, subsection (2) of that section has effect with the omission of its paragraph (b).
(5) A reference in this section to section 643I, 643J or 643L (or to a provision of any of those sections) is to that section (or provision) as it had effect for the tax year in which income was treated as arising to the individual.
644 Application to settlements by two or more settlors
(1) In the case of a settlement where there is more than one settlor, this Chapter has effect in relation to each settlor as if that settlor were the only settlor.
(2) This works as follows.
(3) In this Chapter, in relation to a settlor—
(a) references to the property comprised in a settlement include only property originating from the settlor, and
(b) references to income arising under the settlement include only income originating from the settlor.
(4) For the purposes of sections 629, 631 and 632 only the following are taken into account in relation to a child of the settlor—
(a) income originating from the settlor, and
(b) in a case in which section 631 applies, payments which under that section (as adapted by subsection (5) below) are treated as payments of income.
(5) In applying section 631 to a settlor—
(a) the reference to income arising under the settlement includes only income originating from the settlor, and
(b) the reference to any payment made in connection with the settlement includes only a payment made out of property originating from the settlor or income originating from the settlor.
(6) See section 645 for the meaning of references in this section to property or income originating from a settlor.
(1) References in section 644 to property originating from a settlor are references to—
(a) property which the settlor has provided directly or indirectly for the purposes of the settlement,
(b) property representing property so provided, and
(c) so much of any property which represents both property so provided and other property as, on a just and reasonable apportionment, represents the property so provided.
(2) References in sections 627 and 644 to income originating from a settlor are references to—
(a) income from property originating from the settlor, and
(b) income provided directly or indirectly by the settlor.
(2A) If the same property has been provided by more than one settlor for the purposes of the settlement, so much of the property as is attributable to each settlor on a just and reasonable apportionment is treated for the purposes of this section as provided by that settlor.
(3) In this section references to property or income which a settlor has provided directly or indirectly—
(a) include references to property or income which has been provided directly or indirectly by another person under reciprocal arrangements with the settlor, but
(b) do not include references to property or income which the settlor has provided directly or indirectly under reciprocal arrangements with another person.
(4) In this section references to property which represents other property include references to property which represents accumulated income from the other property.
(1) A settlor is entitled to recover from—
(a) any trustee, or
(b) any other person to whom the income is payable in connection with the settlement,
the amount of any tax paid by the settlor which became chargeable on the settlor under section 624 or 629.
(2) For this purpose, the settlor may require an officer of Revenue and Customs to provide the settlor with a certificate specifying—
(a) the tax year in which income was treated as arising to the settlor under section 624 or 629 (as the case may be),
(b) the amount of the income in respect of which the settlor has paid tax, and
(c) the amount of tax paid.
(3) A certificate provided under subsection (2) is conclusive evidence of the facts stated in it.
(4) Subsection (5) applies if a settlor chargeable to tax under section 624 or 629 obtains a repayment by reason of the payment of the tax by—
(a) any trustee, or
(b) any other person to whom the income is payable by virtue of or as a result of the settlement.
(5) The settlor must pay an amount equal to the repayment to—
(a) the trustee, or
(b) the other person to whom the income is payable by virtue of or as a result of the settlement.
(6) If there are two or more such persons, the amount must be apportioned among them as the case may require.
(6A) For the purpose of subsection (5), the settlor may require an officer of Revenue and Customs to provide the settlor with a certificate specifying—
(a) that the settlor has obtained a repayment as mentioned in subsection (4), ...
(b) the amount of the repayment , and
(c) the tax year in which the income to which the repayment relates was treated as arising to the settlor.
(6B) A certificate provided under subsection (6A) is conclusive evidence of the facts stated in it.
(7) Subject to subsections (6A) and (6B), any question as to—
(a) the amount of a payment under subsection (5), or
(b) an apportionment to be made under subsection (6),
is to be decided by the tribunal and, notwithstanding the provisions of sections 11 and 13 of the Tribunals, Courts and Enforcement Act 2007, the decision of the tribunal is final.
(8) Nothing in sections 624 to 632 is to be read as excluding a charge to tax on the trustees as persons by whom any income is received.
646A Trustees' expenses to be rateably apportioned
(1) This section applies if—
(a) in a tax year qualifying income arises under a UK settlement, and
(b) the qualifying income consists of charitable income and non-charitable income.
(2) If expenses of the trustees are to be set against the charitable income by virtue of section 484 of ITA 2007, the amount of those expenses which can used for that purpose is limited to the amount allocated to the charitable income.
(3) If—
(a) Chapter 8 of Part 9 of ITA 2007 applies in relation to the charitable income, and
(b) expenses of the trustees are to be used to reduce the charitable income for income tax purposes,
the amount of those expenses which can used for that purpose is limited to the amount allocated to the charitable income.
(4) For the purposes of subsections and (3) the amount of the expenses allocated to the charitable income is determined by apportioning them rateably between the charitable income and the non-charitable income.
(5) In this section—
“charitable income” means income within section 628(1) or 630(1),
“non-charitable income” means income which is not charitable income, and
“qualifying income” and “UK settlement” have the same meaning as in section 628.
(1) References in this Chapter to income arising under a settlement include—
(a) any income chargeable to income tax by deduction or otherwise, and
(b) any income which would have been so chargeable if it had been received in the United Kingdom by a person ...resident there.
(2) But if, in a tax year, the settlor is not UK resident, references in this Chapter to income arising under a settlement do not include income arising under the settlement in that tax year in respect of which the settlor, if actually entitled to it, would not be chargeable to income tax by deduction or otherwise because of not being UK resident.
(3) And if, for the tax year 2024-25 or an earlier tax year, section 809B, 809D or 809E of ITA 2007 (remittance basis) applied to the settlor, references in this Chapter to income arising under a settlement include in relation to any specified foreign income arising under the settlement in that tax year only such of it as is remitted to the United Kingdom (in that tax year or any subsequent tax year) in circumstances such that, if the settlor remitted it, the settlor would be chargeable to income tax.
(4) See Chapter A1 of Part 14 of ITA 2007 for the meaning of “remitted to the United Kingdom” etc.
(5) Where subsection (3) applies the remitted income is treated for the purposes of this Chapter as arising under the settlement in the tax year in which it is remitted.
(6) In subsection (3), “specified foreign income” means income that would be relevant foreign income if it were the income of a UK resident individual.
(1) Income tax is charged on estate income.
(1A) But income tax is not charged on estate income so far as that income consists of a basic amount which section 679 treats as having been paid from de minimis aggregate income.
(1B) In subsection (1A), “de minimis aggregate income” means aggregate income of an estate which is treated as bearing income tax at 0% because of section 680(1A).
(2) In this Chapter—
“estate income” means the income treated under this Chapter as arising from an absolute, limited or discretionary interest in the whole or part of the residue of an estate, and
“estate” means the estate of a deceased person (whether a UK estate or a foreign estate).
(3) Estate income is treated as income for income tax purposes.
(4) If different parts of an estate are subject to different residuary dispositions, those parts are treated for the purposes of this Chapter as if they were separate estates.
(1) A person has an absolute interest in the whole or part of the residue of an estate for the purposes of this Chapter if—
(a) the capital of the residue or that part is properly payable to the person, or
(b) it would be so payable, if the residue had been ascertained.
(2) A person has a limited interest in the whole or part of the residue of an estate during any period for the purposes of this Chapter if—
(a) the person does not have an absolute interest in it, and
(b) the income from it would be properly payable to the person if the residue had been ascertained at the beginning of that period.
(3) A person has a discretionary interest in the whole or part of the residue of an estate for the purposes of this Chapter if—
(a) a discretion may be exercised in the person's favour, and
(b) on its exercise in the person's favour any of the income of the residue during the whole or part of the administration period (see section 653) would be properly payable to the person if the residue had been ascertained at the beginning of that period.
(4) For the purposes of this section, an amount is only treated as properly payable to a person if it is properly payable to the person, or to another in the person's right, for the person's benefit, except where subsection (5) applies.
(5) The personal representatives of a deceased person (“A”) are to be treated as having an absolute or limited interest in the whole or part of the residue of the estate of another deceased person (“B”) if—
(a) they have a right in their capacity as A's personal representatives, and
(b) were the right vested in them for their own benefit, they would have that interest in B's estate.
(6) For the purposes of subsection (4), it does not matter whether the amount is payable directly by the personal representatives or through a trustee or other person.
(1) In this Chapter—
“UK estate”, in relation to a tax year, means an estate which meets conditions A and B, or condition C, for that year, and
“foreign estate”, in relation to a tax year, means an estate which is not a UK estate in relation to that year.
(2) Condition A is that all the income of the estate either—
(a) has borne United Kingdom income tax by deduction, or
(b) is income in respect of which the personal representatives are directly assessable to United Kingdom income tax for the tax year.
(3) Condition B is that none of the income of the estate is income for which the personal representatives are not liable to United Kingdom income tax for the tax year because they are not UK resident ....
(4) For the purposes of conditions A and B sums within section 664(2)(c) or (d) or 680(4) (sums not liable to tax and sums treated as bearing tax) are ignored.
(5) Condition C is that the aggregate income of the estate for the tax year consists only of sums within section 664(2)(c) or (d) or 680(4).
(1) Income is treated as arising in a tax year from a person's absolute interest in the whole or part of the residue of an estate if—
(a) the person has an assumed income entitlement for the tax year in respect of the interest (see sections 665 to 670), and
(b) condition A or B is met.
(2) Condition A is that a payment is made in respect of the interest in the tax year and before the end of the administration period (see section 653).
(3) Condition B is that the tax year is the final tax year (see section 653).
(4) Income treated as arising as a result of this section is estate income for the purposes of this Chapter.
653 Meaning of “the administration period” and “the final tax year”
(1) In this Chapter “the administration period”, in relation to the estate of a deceased person, means the period beginning with the deceased's death and ending with the completion of the administration of the estate.
(2) In the application of subsection (1) to Scotland, the reference to the completion of the administration is to be taken as a reference to the date at which, after discharge of, or provision for, liabilities falling to be met out of the deceased's estate, the free balance held in trust for the residuary legatees or for the persons with the right to the intestate estate has been ascertained.
(3) In this Chapter “the final tax year” means the tax year in which the administration period ends.
(1) Income is treated as arising in a tax year from a person's limited interest in the whole or part of the residue of an estate in cases A, B and C.
(2) Case A is where—
(a) the interest has not ceased before the beginning of the tax year, and
(b) a sum is paid in respect of the interest in that year and before the end of the administration period.
(3) Case B is where—
(a) the tax year is the final tax year,
(b) the interest has not ceased before the beginning of that year, and
(c) a sum remains payable in respect of the interest at the end of the administration period.
(4) Case C is where—
(a) the tax year is a year before the final tax year,
(b) the interest ceases in the tax year, and
(c) a sum is paid in respect of the interest in a later tax year but before the end of the administration period, or remains payable in respect of it at the end of that period.
(5) This section does not apply to limited interests to which section 674 (successive interests: holders of limited interests) applies.
(6) Income treated as arising as a result of this section or section 674 is estate income for the purposes of this Chapter.
655 Estate income: discretionary interests in residue
(1) Income is treated as arising in a tax year from a person's discretionary interest in the whole or part of the residue of an estate if a payment is made in the tax year in exercise of the discretion in that person's favour.
(2) Income treated as arising as a result of this section is estate income for the purposes of this Chapter.
(1) In the case of a UK estate, the charge to tax under section 649 is a charge on the amount of estate income treated as arising in the tax year.
(2) That amount is the basic amount of that income for the tax year (see subsection (4)) grossed up by reference to the applicable rate ... (see section 663).
(3) The gross amount is treated as having borne income tax at that rate.
(4) In this Chapter “the basic amount”, in relation to estate income, has the meaning given by—
(a) section 660 (basic amount of estate income: absolute interests),
(b) section 661 (basic amount of estate income: limited interests),
(c) section 662 (basic amount of estate income: discretionary interests), and
(d) section 675 (basic amount of estate income: successive limited interests).
(1) In the case of a foreign estate, the charge to tax under section 649 is a charge on the full amount of estate income treated as arising in the tax year.
(2) That amount depends on whether the estate income arising in the tax year is paid from sums within section 680(4) (sums treated as bearing income tax).
(3) So far as the estate income is paid from such sums, that amount is the basic amount of that income for the tax year grossed up by reference to the applicable rate ... (see section 663).
(4) That gross amount is treated as having borne income tax at that rate.
(5) So far as the estate income is not paid from sums within section 680(4), the amount of estate income treated as arising in the tax year is the basic amount of that income for that year.
(1) The charge to tax under section 649 on the amount of income arising in a tax year is subject to Part 8 (foreign income: special rules).
(2) For the purposes of section 830(1) (meaning of “relevant foreign income”) amounts charged to tax under section 649—
(a) are treated as arising from a source outside the United Kingdom if the estate is a foreign estate, and
(b) are treated as not arising from such a source if the estate is a UK estate.
(1) If the estate income is from a person's absolute interest or limited interest, that person is liable for any tax charged under section 649 unless subsection (3) or (4) provides that another person is liable.
(2) If the estate income is from a discretionary interest, the person in whose favour the discretion is exercised in making the payment in question is liable for any tax charged under section 649.
(3) If, in a case where the estate income is from an absolute interest—
(a) section 671 (successive absolute interests) applies, or
(b) section 672 (successive interests: assumed income entitlement of holder of absolute interest following limited interest) applies and the income is treated as arising because of that section,
the person by reference to whose assumed income entitlement the estate income is determined is liable for any tax charged under section 649.
(4) If, in a case where the estate income is from a limited interest—
(a) section 673(1) applies and the income is treated as arising because of section 673(2) (payment in respect of a previous limited interest), or
(b) section 674 (successive interests: holders of limited interests) applies,
the person entitled to receive the payment in question is liable for any tax charged under section 649.
660 Basic amount of estate income: absolute interests
(1) The basic amount of estate income relating to a person's absolute interest in the whole or part of the residue of an estate for a tax year before the final tax year is the lower of—
(a) the total of all sums paid in the tax year in respect of that interest, and
(b) the amount of the person's assumed income entitlement for the tax year in respect of it.
(2) The basic amount for the final tax year is equal to the amount of the person's assumed income entitlement for that year in respect of that interest.
(3) But if the residuary income of the estate for the final tax year is nil because the allowable estate deductions exceed the aggregate income of the estate, the basic amount for that year is reduced—
(a) where the person has an absolute interest in the whole of the residue of the estate, by an amount equal to the excess, and
(b) in any other case, by an amount equal to such part of the excess as is just and reasonable.
(4) See sections 665 to 670 for the meaning of references to assumed income entitlement and residuary income of an estate.
(5) See sections 664 and 666(2) for the meaning of aggregate income of an estate and allowable estate deductions respectively.
(6) This section is subject to sections 671 to 673 (successive interests).
661 Basic amount of estate income: limited interests
(1) The basic amount of estate income relating to a person's limited interest in the whole or part of the residue of an estate for a tax year is the total of the sums within section 654(2)(b), (3)(c) and (4)(c) for that year.
(2) This does not apply, and section 675 applies instead, if the limited interest is one to which section 674 (successive interests: holders of limited interests) applies.
662 Basic amount of estate income: discretionary interests
The basic amount of estate income relating to a person's discretionary interest in the whole or part of the residue of an estate for a tax year is the total of the payments made in the tax year in exercise of the discretion in favour of the person.
663 The applicable rate for grossing up basic amounts of estate income
(1) The applicable rate by reference to which a basic amount of estate income is grossed up for the purposes of sections 656 and 657 depends on the rate at which income tax was borne by the parts of the aggregate income of the estate from which section 679 treats the basic amount as having been paid.
(2) If the same rate was borne by all of the income from which section 679 treats the basic amount as having been paid, the applicable rate is that rate.
(3) If different rates were borne by different parts of the income from which section 679 treats the basic amount as having been paid, each of those rates is the applicable rate by reference to which the corresponding part of the basic amount is grossed up.
(1) For the purposes of this Chapter the aggregate income of the estate for a tax year is the total of the income and amounts specified in subsection (2), but excluding the income specified in subsection (5).
(2) The income and amounts are—
(a) the income of the deceased's personal representatives in that capacity which is charged to United Kingdom income tax for the tax year,
(b) the income of the deceased's personal representatives in that capacity on which such tax would have been charged for the tax year if—
(i) it was income of a UK resident ..., and
(ii) it was income from a source in the United Kingdom,
(c) any amount of income treated as arising to the personal representatives under section 410(4) (stock dividends) that would be charged to income tax under Chapter 5 of Part 4 if income arising to personal representatives were so charged (see section 411),
(d) in a case where section 419(2) applies (release of loans to participator in close company: loans and advances to persons who die), the amount that would be charged to income tax under Chapter 6 of Part 4 apart from that section, and
(e) any amount that would have been treated as income of the personal representatives in that capacity under section 466 if the condition in section 466(2) had been met (gains from contracts for life insurance).
(3) In calculating the amount of the income within subsection (2)(a), any allowable deductions are to be taken into account.
(4) In calculating the amount of the income within subsection (2)(b), any deductions which would be allowable if the income had been charged to United Kingdom income tax are to be deducted from the full amount of the income actually arising in the tax year.
(5) The excluded income is—
(a) income to which any person is or may become entitled under a specific disposition, and
(b) income from property devolving on the personal representatives otherwise than as assets for payment of the deceased's debts.
(6) In subsection (5)(a) “specific disposition” means a gift of specific property under a will, including—
(a) the disposition of personal chattels by section 46 of the Administration of Estates Act 1925 (c. 23) (succession on intestacy), and
(b) any disposition which under the law of another country has a similar effect to a gift of specific property by will under the law of England and Wales,
but excluding real property included in a residuary gift made by will by a specific or general description of it or, in Scotland, heritable estate included in such a gift.
(1) Whether a person has an assumed income entitlement for a tax year in respect of an absolute interest in the whole or part of the residue of an estate depends on the results of the following steps.
Step 1
Find the amount of the person's share of the residuary income of the estate that is attributable to that interest for that tax year and each previous tax year during which the person had that interest (see sections 666 to 669).
Step 2
If the estate is a UK estate in relation to any tax year for which an amount has been found under step 1, deduct from that amount income tax on that amount at the applicable rate for that year (see section 670).
Step 3
Add together the amounts found under step 1 after making any deductions necessary under step 2.
Step 4
Add together the basic amounts relating to the person's absolute interest in respect of which the person was liable for income tax for all previous tax years (or would have been so liable if the person had been a person liable for income tax for those years).
(2) For the purposes of this Chapter the person has an assumed income entitlement for the tax year if the amount resulting from step 3 exceeds the amount resulting from step 4.
(3) The assumed income entitlement is equal to the excess.
(4) This section is subject to—
section 671 (successive absolute interests), and
section 672 (successive interests: assumed income entitlement of holder of absolute interest following limited interest).
(1) For the purposes of this Chapter the residuary income of an estate for a tax year is the aggregate income of the estate for that year, less the allowable estate deductions for that year.
This is subject to section 669 (reduction in residuary income: inheritance tax on accrued income).
(2) The allowable estate deductions for a tax year are—
(a) all interest paid in that year by the personal representatives in that capacity (but see section 233 of IHTA 1984: exclusion of interest on unpaid inheritance tax),
(b) all annual payments for that year which are properly payable out of residue,
(c) all payments made in that year in respect of expenses incurred by the personal representatives in that capacity in the management of the assets of the estate, and
(d) any excess deductions from the previous tax year.
This is subject to subsections (3) to (5).
(3) No sum is to be treated as an allowable estate deduction if it is allowable in calculating the aggregate income of the estate.
(4) No sum is to be counted twice as an allowable estate deduction.
(5) Payments in respect of expenses are only allowable estate deductions if they are properly chargeable to income (ignoring any specific direction in a will).
(6) In this section “excess deductions from the previous tax year” means so much of the allowable deductions for the previous tax year as exceeded the aggregate income of the estate for that year.
(1) In the case of a person who has an absolute interest in the whole of the residue of an estate for a whole tax year, the person's share of the residuary income of the estate in respect of that interest for that year is equal to the whole of that income for that year.
(2) In the case of a person who—
(a) has an absolute interest in the whole of the residue of an estate for part of the tax year, or
(b) an absolute interest in part of the residue of an estate for the whole or part of the tax year,
the person's share of the residuary income of the estate is a proportionate part of that income for that year.
(3) This section is subject to section 668 (reduction in share of residuary income of estate).
668 Reduction in share of residuary income of estate
(1) This section applies if a person has an absolute interest in the whole or part of the residue of an estate at the end of the administration period and—
(a) the total of the person's shares of the residuary income of the estate in respect of that interest for all tax years (apart from this section), exceeds
(b) the total of all sums paid during or payable at the end of the administration period in respect of that interest to any person grossed up, where the estate is a UK estate, by the applicable rate (see subsections (5A) to (5C)).
(2) In the final tax year the person's share of the residuary income of the estate is to be reduced by that excess.
(3) If that excess is greater than the person's share of that income for the final tax year, that person's share of that income for the previous tax year is to be reduced, and so on.
(4) If subsection (3) applies all necessary adjustments and repayments of income tax are to be made.
(5A) The applicable rate by reference to which a sum within subsection (1)(b) is grossed up depends on the rate at which income tax was borne by the parts of the aggregate income of the estate from which section 679A treats the sum as having been paid.
(5B) If the same rate was borne by all the income from which section 679A treats the sum as having been paid, the applicable rate is that rate.
(5C) If different rates were borne by different parts of the income from which section 679A treats the sum as having been paid, each of those rates is the applicable rate by reference to which the corresponding part of the sum is grossed up.
(6) For the application of this section where two or more absolute interests in the whole or the same part of the residue are held successively by different persons, see section 671(5) and (6).
669 Reduction in residuary income: inheritance tax on accrued income
(1) This section applies if on the death of a person (“D”) income which accrued before D's death (“pre-death income”) is taken into account both—
(a) in determining the value of D's estate for the purposes of inheritance tax charged on D's death, and
(b) in calculating the residuary income of D's estate for a tax year.
(2) A reduction is made in the residuary income of D's estate for that tax year in ascertaining the extra liability, if any, of a person with an absolute interest in the whole or part of the residue of D's estate or any other estate to which that residuary income is relevant.
(3) A person's extra liability is the amount by which the person's liability to income tax exceeds the amount it would be if—
(a) income charged at an applicable rate were charged at the basic rate, ...
(b) income charged at the dividend additional rate or the dividend upper rate were charged at the dividend ordinary rate,
(c) income charged at the property additional rate or the property higher rate were charged at the property basic rate, and
(d) income charged at the savings additional rate or the savings higher rate were charged at the savings basic rate.
(3A) For the purposes of subsection (3), each of the following is an “applicable rate”—
(a) the higher rate,
(b) the additional rate,
(c) any Scottish rate that—
(i) is above the Scottish basic rate, but
(ii) is not the Scottish intermediate rate,
(d) the Welsh higher rate, and
(e) the Welsh additional rate.
(4) The amount of the reduction under subsection (2) is calculated as follows:
Step 1
Calculate the net pre-death income by subtracting from the pre-death income any liabilities which have been taken account both—
(a) in determining the value of D's estate for the purposes of inheritance tax, and
(b) in calculating the residuary income of D's estate for the tax year.
Step 2
Calculate the inheritance tax attributable to net pre-death income by multiplying the inheritance tax to be charged by—
NPDI
VE
where—
NPDI is the net pre-death income, and
VE is the value of D's estate.
Step 3
Gross up the inheritance tax attributable to net pre-death income by reference to the basic rate for the tax year.
(5) The amount of pre-death income taken into account in determining the value of D's estate is taken to be the actual amount of income accruing before D's death, less income tax at the basic rate for the tax year in which D died.
(6) Subsection (5) applies even if the income so accruing was not valued separately or its amount was not known at the date of D's death.
(7) For the purposes of this section, the amounts agreed between the persons liable for inheritance tax and an officer of Revenue and Customs , or determined in proceedings between them, as the value of the estate and the amount of inheritance tax to be charged are conclusive.
(8) Evidence of those amounts and of any facts relevant to their calculation may be given by the production of a document that appears to be a certificate from an officer of Revenue and Customs
670 Applicable rate for determining assumed income entitlement (UK estates)
(1) The applicable rate by reference to which income tax on a person's share of the residuary income of the estate for a tax year is calculated for the purposes of step 2 of the calculation in section 665(1) depends on the rate at which income tax is borne by the aggregate income of the estate for the year.
(2) If the aggregate income of the estate all bears income tax at the same rate, the applicable rate is that rate.
(3) If different parts of the aggregate income of the estate bear income tax at different rates, the applicable rate is the rate that applies to the income to which the person's share of the residuary income of the estate relates.
(4) If different rates apply to different parts of that income, each of those rates is the applicable rate that applies to the corresponding part of the income to which the person's share of the residuary income of the estate relates.
(4A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) For the purposes of this section, if there is more than one person with an absolute interest in the residue of the estate, such apportionments of parts of the aggregate income of the estate bearing income tax at different rates are to be made as are just and reasonable for their different interests.
(1) This section applies if two or more absolute interests in the whole or the same part of the residue of an estate are held successively during the administration period by different persons.
(2) In determining whether a person with a later such interest (“the later holder”) has an assumed income entitlement in respect of that interest and, if so, its amount—
(a) the later holder's share of the residuary income of the estate in respect of that interest for any tax year is to be treated as including the share of any person with a previous such interest (“a previous holder”), and
(b) the basic amounts relating to the later holder's interest are to be treated as including the basic amounts relating to any previous such interest.
(3) In applying subsection (2), all determinations under that subsection or section 672(2) that fall to be made in relation to a person with an earlier interest are to be made before determinations under those provisions relating to a person with a later interest.
(4) A person who is a previous holder in the final tax year is to be taxed in that year, in relation to the interest as to which that person is a previous holder, as if that year were not the final tax year, and the later holder's assumed income entitlement in that year is to be calculated accordingly (or, where the previous holder is a company chargeable to corporation tax, having regard to the application of section 954(4) of CTA 2009 to the previous holder).
(5) The calculation under section 668(1)(a) and (b) (amount of reduction in the share of the residuary income of the person with an absolute interest at the end of the administration period) is to be made by reference to all the absolute interests taken together.
(6) If the amount resulting from that calculation is greater than the total amount of the reductions which can be made under section 668(2) and (3), the share of the residuary income of the estate of the last previous holder of the interest for the last tax year in which that last holder had that interest is to be reduced, and so on (but, in a case where the last previous holder or any earlier previous holder is a company chargeable to corporation tax, having regard to the application of section 954(6) of CTA 2009 to the previous holder).
(7) For the purposes of this section and sections 672 to 676, two interests are held successively even where one is not held immediately before or after the other.
(8) It is assumed for those purposes that each of the persons holding the interests in question is a person liable to income tax.
672 Successive interests: assumed income entitlement of holder of absolute interest following limited interest
(1) This section applies if—
(a) two or more interests in the whole or part of the residue of an estate are held successively during the administration period by different persons,
(b) each later interest arises or is created on the cessation of the previous interest otherwise than by death,
(c) at least one of the interests is an absolute interest, and
(d) at least one of the interests preceding that interest is a limited interest.
(2) Rules A and B apply to determine in relation to such an absolute interest—
(a) whether the person with the interest has an assumed income entitlement in respect of the interest, and
(b) if so, its amount.
(3) Rule A is that the person's share of the residuary income of the estate in respect of the absolute interest for any tax year is treated as including any amount which would be included in it if—
(a) the interest had subsisted throughout the period when any such limited interest subsisted, and
(b) no such limited interest had ever subsisted.
(4) Rule B is that the basic amounts relating to the absolute interest are treated as including the basic amounts relating to any such limited interest.