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Income Tax (Trading and Other Income) Bill


Income Tax (Trading and Other Income) Bill
Part 5 — Miscellaneous income
Chapter 5 — Settlements: amounts treated as income of settlor

278

 

639     

Loans to participators in close companies

(1)   

This section applies if any amount has been included in a person's income

under Chapter 6 of Part 4 (release of loan to participator in close company) in

respect of any loan or advance.

(2)   

There is a corresponding reduction in the amount (if any) afterwards falling to

5

be so included under section 633 in respect of the loan or advance.

640     

Grossing-up of deemed income

(1)   

The whole or any part of a capital sum which is treated under section 633 as

income of the settlor for any tax year is treated as income of an amount equal

to the sum or the part of the sum, grossed up by reference to the rate applicable

10

to trusts for that year.

(2)   

The deductible amount is to be set off against the amount of tax charged on any

amount treated under section 633 as income of the settlor for any year.

(3)   

In subsection (2) the “deductible amount” is an amount equal to—

(a)   

tax at the rate applicable to trusts for the year on the amount treated

15

under section 633 as the settlor’s income,

(b)   

so much of the amount of tax at that rate as is equal to the tax charged,

or

(c)   

the amount of tax paid by the trustees on the grossed-up amount of so

much of the amount of income available up to the end of the year, in

20

relation to the capital sum, as is taken into account under section 633 in

relation to that sum in that year (see subsections (4) to (7) below),

   

whichever is the least.

(4)   

For the purposes of subsection (3)(c)—

(a)   

any reduction falling to be made under section 635(3)(d) is treated as

25

made against income arising under the settlement in an earlier tax year

before income arising under the settlement in a later tax year, and

(b)   

income arising under the settlement in an earlier tax year is treated as

taken into account under section 633 before income arising under the

settlement in a later tax year.

30

(5)   

For the purposes of subsection (3)(c)—

(a)   

the grossed-up amount of any sum is an amount equal to the sum,

grossed up by reference to the appropriate rate for each part of the sum,

and

(b)   

the amount of tax paid by the trustees on that grossed-up amount is the

35

difference between the grossed-up amount and the sum in question.

(6)   

For the purposes of subsection (5)—

(a)   

the appropriate rate for any part of a sum is 0% if—

(i)   

the income that falls to be treated in accordance with subsection

(4) as representing that part of the sum is income from a source

40

outside the United Kingdom, and

(ii)   

the trustees were non-UK resident for the relevant tax year, and

(b)   

the appropriate rate for any part of a sum in relation to which

paragraph (a) does not apply is—

(i)   

34%, if the relevant tax year is the year 2003-04 or any earlier tax

45

year, and

 
 

Income Tax (Trading and Other Income) Bill
Part 5 — Miscellaneous income
Chapter 5 — Settlements: amounts treated as income of settlor

279

 

(ii)   

40%, if the relevant tax year is the year 2004-05 or any

subsequent tax year.

(7)   

In subsection (6) “the relevant tax year”, in relation to any part of a sum, means

the tax year in which the income treated in accordance with subsection (4) as

representing that part of the sum arose under the settlement.

5

Capital sums treated as income of settlor: connected bodies

641     

Capital sums paid to settlor by body connected with settlement

(1)   

This section applies if—

(a)   

a capital sum is paid to the settlor in a tax year by any body corporate

connected with the settlement in that year, and

10

(b)   

an associated payment has been, or is, made directly or indirectly to the

body by the trustees of the settlement.

(2)   

The capital sum is, in accordance with this section, treated for the purposes of

section 633 as having been paid to the settlor by the trustees of the settlement.

(3)   

A capital sum to which subsection (2) applies is treated as having been paid to

15

the settlor in the tax year in which it is paid so far as the amount of the sum falls

within the total of the associated payment or payments made up to the end of

the year.

(4)   

A capital sum to which subsection (2) applies is treated as having been paid to

the settlor in the following year so far as the amount of the sum—

20

(a)   

is not treated as paid to the settlor in the year mentioned in subsection

(3), and

(b)   

falls within the total of the associated payment or payments made up

to the end of the following year (less what was taken into account under

subsection (3) in relation to the sum in the previous year).

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(5)   

Subsection (4) also applies for each subsequent year.

(6)   

In its application to a subsequent year—

(a)   

the references to the following year are to the subsequent year,

(b)   

the reference to the year mentioned in subsection (3) is to that year and

any other year before the subsequent year, and

30

(c)   

the reference to what was taken into account under subsection (3) in

relation to the sum in the previous year is to what was taken into

account under this section in relation to the sum in the previous years.

(7)   

See also—

section 642 (exception for certain loans or repayments of loans), and

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section 643 (interpretation of sections 641 and 642).

642     

Exception for certain loans or repayments of loans

(1)   

Section 641 does not apply to any sum paid to the settlor by way of loan or

repayment of a loan if conditions A and B are met.

(2)   

Condition A is that the whole of the loan is repaid within 12 months of the date

40

on which it was made.

 
 

Income Tax (Trading and Other Income) Bill
Part 5 — Miscellaneous income
Chapter 5 — Settlements: amounts treated as income of settlor

280

 

(3)   

Condition B is that the period for which amounts are outstanding in respect of

relevant loans in any period of 5 years is not more than 12 months.

(4)   

In subsection (3) “relevant loans” means loans made—

(a)   

to the settlor by the body corporate connected with the settlement or by

any other body corporate so connected, or

5

(b)   

by the settlor to the body corporate connected with the settlement or to

any other body corporate so connected.

643     

Interpretation of sections 641 and 642

(1)   

Any question in section 641 or 642 whether a capital sum has been paid—

(a)   

to the settlor by a body corporate, or

10

(b)   

to a body corporate by the trustees,

   

is determined in the same way as any question under section 633 whether a

capital sum has been paid to the settlor by the trustees.

(2)   

For the circumstances in which a body corporate is treated for the purposes of

this Chapter as connected with a settlement, see section 637(8).

15

(3)   

In section 641 and this section “associated payment”, in relation to any capital

sum paid to the settlor by a body corporate, means—

(a)   

any capital sum paid to the body by the trustees of the settlement, and

(b)   

any other sum paid, or asset transferred, to the body by the trustees

which is not paid or transferred for full consideration in money or

20

money's worth,

   

being any sum paid, or asset transferred, in the 5 years ending or beginning

with the date on which the capital sum is paid to the settlor.

(4)   

For the purposes of sections 641 and 642 and this section any capital sum paid

by a body corporate, and any associated payment made to a body corporate, at

25

a time when it is (within the meaning of section 416 of ICTA) associated with

another body corporate may be treated as paid by, or made to, the other body

corporate.

Settlements by two or more settlors

644     

Application to settlements by two or more settlors

30

(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

35

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—

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(a)   

income originating from the settlor, and

 
 

Income Tax (Trading and Other Income) Bill
Part 5 — Miscellaneous income
Chapter 5 — Settlements: amounts treated as income of settlor

281

 

(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

5

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

10

income originating from a settlor.

645     

Property or income originating from 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

15

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.

20

(2)   

References in section 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.

(3)   

In this section references to property or income which a settlor has provided

25

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

30

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.

35

Other supplementary provisions

646     

Adjustments between settlor and trustees etc.

(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

40

settlement,

   

the amount of any tax paid by the settlor which became chargeable on the

settlor under section 624 or 629.

 
 

Income Tax (Trading and Other Income) Bill
Part 5 — Miscellaneous income
Chapter 5 — Settlements: amounts treated as income of settlor

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(2)   

For this purpose, the settlor may require the Inland Revenue to provide the

settlor with a certificate specifying—

(a)   

the amount of income in respect of which the settlor has so paid tax, and

(b)   

the amount of tax so paid.

(3)   

A certificate provided under subsection (2) is conclusive evidence of the facts

5

stated in it.

(4)   

Subsection (5) applies if—

(a)   

a settlor obtains a repayment of tax in respect of an allowance or relief,

and

(b)   

the repayment is in excess of the amount of the repayment to which the

10

settlor would have been entitled but for sections 624 to 632.

(5)   

The settlor must pay an amount equal to the excess 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.

15

(6)   

If there are two or more such persons, the amount must be apportioned among

them as the case may require.

(7)   

Any question as to—

(a)   

the amount of a payment under subsection (5), or

(b)   

an apportionment to be made under subsection (6),

20

   

is to be decided by the General Commissioners whose decision 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.

647     

Power to obtain information

(1)   

The Inland Revenue may by notice require any party to a settlement to provide

25

them, within such period as they may direct, with such particulars as they

consider necessary for the purposes of this Chapter.

(2)   

The period concerned must be not less than 28 days.

648     

Income arising under a settlement

(1)   

References in this Chapter to income arising under a settlement include—

30

(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 domiciled, resident and

ordinarily resident there.

(2)   

But this is subject to the rule in subsection (3) which applies if, in a tax year, the

35

settlor is—

(a)   

not domiciled in the United Kingdom,

(b)   

not UK resident, or

(c)   

not ordinarily UK resident.

(3)   

The rule is that references in this Chapter to income arising under a settlement

40

do not include income arising under the settlement in that tax year in respect

of which the settlor, if the settlor were actually entitled to it, would not be

 
 

Income Tax (Trading and Other Income) Bill
Part 5 — Miscellaneous income
Chapter 6 — Beneficiaries’ income from estates in administration

283

 

chargeable to income tax by deduction or otherwise because of the settlor not

being domiciled in the United Kingdom, UK resident or ordinarily UK

resident.

(4)   

Subsection (5) qualifies the rule in subsection (3) if such income is remitted to

the United Kingdom in circumstances such that, if the settlor were actually

5

entitled to the income when remitted, the settlor would be chargeable to

income tax because of being UK resident.

(5)   

The income is treated for the purposes of this Chapter as arising under the

settlement in the year in which it is remitted.

Chapter 6

10

Beneficiaries’ income from estates in administration

Charge to tax on estate income

649     

Charge to tax on estate income

(1)   

Income tax is charged on estate income.

(2)   

In this Chapter—

15

“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).

20

(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.

650     

Absolute, limited and discretionary interests

25

(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.

30

(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.

35

(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)

40

 
 

Income Tax (Trading and Other Income) Bill
Part 5 — Miscellaneous income
Chapter 6 — Beneficiaries’ income from estates in administration

284

 

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

(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

10

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.

651     

Meaning of “UK estate” and “foreign estate”

15

(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.

20

(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

25

personal representatives are not liable to United Kingdom income tax for the

tax year because they are not UK resident or not ordinarily UK resident.

(4)   

For the purposes of conditions A and B sums within section 680(3) or (4) (sums

treated as bearing tax) are ignored.

(5)   

Condition C is that the aggregate income of the estate for the tax year consists

30

only of sums within section 680(3) or (4).

Types of estate income

652     

Estate income: absolute interests in residue

(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—

35

(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).

40

(3)   

Condition B is that the tax year is the final tax year (see section 653).

 
 

 
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