Income Tax (Trading and Other Income) Bill

House of Commons

Session 2004 - 05
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Other Bills before Parliament

Income Tax (Trading and Other Income) Bill

Income Tax (Trading and Other Income) Bill
Part 5 — Miscellaneous income
Chapter 6 — Beneficiaries’ income from estates in administration
292

(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 the higher rate were charged—
(i)
in the case of income within section 1A(1A)(c) of ICTA (income
chargeable at the lower rate instead of the starting rate or the
5
basic rate), at the lower rate, and
(ii)
in any other case, at the basic rate, and
(b)
income charged at the dividend upper rate were charged at the
dividend ordinary rate.
(4)
The amount of the reduction under subsection (2) is calculated as follows:
10

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
15
(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—

where—
20
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.
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(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.
30
(7)
For the purposes of this section, the amounts agreed between the persons liable
for inheritance tax and the Inland Revenue, 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
35
given by the production of a document that appears to be a certificate from the
Inland Revenue.
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
40
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.

Income Tax (Trading and Other Income) Bill
Part 5 — Miscellaneous income
Chapter 6 — Beneficiaries’ income from estates in administration
293

(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.
5
(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.
(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
10
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.
Special rules for successive interests
671
Successive absolute interests
(1)
This section applies if two or more absolute interests in the whole or the same
15
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—
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(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.
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(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
30
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.
(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
35
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
40
last tax year in which that last holder had that interest is to be reduced, and so
on.
(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.

Income Tax (Trading and Other Income) Bill
Part 5 — Miscellaneous income
Chapter 6 — Beneficiaries’ income from estates in administration
294

(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—
5
(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,
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(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
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(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
20
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.
673
Successive interests: payments in respect of limited interests followed by
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absolute interests
(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,
30
(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)
A sum to which a person (“P”) with such an absolute interest is entitled in
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respect of any such limited interest which is paid while P has the absolute
interest is treated as paid in respect of the absolute interest (and not the limited
interest).
(3)
Subsection (4) applies if—
(a)
P’s absolute interest ceases during the administration period, and
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(b)
a sum to which P is entitled in respect of any such limited interest—
(i)
is paid after the absolute interest ceases but before the end of the
administration period, or
(ii)
remains payable at the end of it.

Income Tax (Trading and Other Income) Bill
Part 5 — Miscellaneous income
Chapter 6 — Beneficiaries’ income from estates in administration
295

(4)
This Chapter applies as respects any such sum as if the limited interest had
continued to subsist while that absolute interest subsisted and had been held
by P.
(5)
Subsection (4) is subject to subsection (6).
(6)
For the purposes only of section 668 (reduction in share of residuary income of
5
estate), any such sum is treated as paid or payable in respect of the absolute
interest.
674
Successive interests: holders of limited interests
(1)
This section applies if—
(a)
two or more interests in the whole or part of the residue of an estate are
10
held successively during the administration period by different
persons,
(b)
the earlier or, if there are more than two, the earliest of the interests is a
limited interest, and
(c)
each later interest arises or is created on the cessation of the previous
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interest otherwise than by death.
(2)
Income is treated as arising from a limited interest in the whole or part of the
residue of the estate in a tax year in cases A, B and C.
(3)
Case A is where—
(a)
one of the successive interests subsists at the beginning of the tax year,
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(b)
a sum is paid in respect of one of the interests in that year and before
the end of the administration period, and
(c)
a person who has or has had one of the interests which is a limited
interest (“a limited holder”) is entitled to receive the payment.
(4)
Case B is where—
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(a)
the tax year is the final tax year,
(b)
one of the successive interests subsists at the beginning of that year,
(c)
a sum remains payable in respect of one of the interests at the end of the
administration period, and
(d)
a limited holder is entitled to receive the payment.
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(5)
Case C is where—
(a)
the tax year is a year before the final tax year,
(b)
the last of the successive interests ceases in the tax year,
(c)
a sum is either—
(i)
paid in respect of one of the interests in a later tax year but
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before the end of the administration period, or
(ii)
remains payable in respect of it at the end of that period, and
(d)
a limited holder is entitled to receive the payment.
675
Basic amount of estate income: successive limited interests
The basic amount of estate income relating to a limited interest within section
40
674 for a tax year is the total of the sums within section 674(3)(b), (4)(c) and
(5)(c) for that year.