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Corporation Tax Bill


Corporation Tax Bill
Part 10 — Miscellaneous income
Chapter 3 — Beneficiaries’ income from estates in administration

444

 

940     

Discretionary interests in residue

(1)   

Income is treated as arising in an accounting period from a company’s

discretionary interest in the whole or part of the residue of an estate if a

payment is made in the accounting period in exercise of the discretion in the

company’s favour.

5

(2)   

Income treated as arising as a result of this section is estate income for the

purposes of this Chapter.

Income charged

941     

UK estates

(1)   

In the case of a UK estate, tax is charged under section 934 on the amount of

10

estate income treated as arising in the accounting period.

(2)   

That amount is the basic amount of that income for the accounting period (see

subsection (4)), grossed up by reference to the applicable rate for the relevant

tax year (see section 946).

(3)   

The gross amount is treated as having borne income tax by deduction at that

15

rate.

(4)   

In this Chapter “the basic amount”, in relation to estate income, has the

meaning given by—

(a)   

section 943 (basic amount of estate income: absolute interests),

(b)   

section 944 (basic amount of estate income: limited interests),

20

(c)   

section 945 (basic amount of estate income: discretionary interests), and

(d)   

section 958 (basic amount of estate income: successive limited

interests).

942     

Foreign estates

(1)   

In the case of a foreign estate, tax is charged under section 934 on the amount

25

of estate income treated as arising in the accounting period.

(2)   

That amount depends on whether the estate income arising in the accounting

period is paid from sums within section 963(3) or (4) (sums treated as bearing

income tax).

(3)   

So far as the estate income is paid from such sums, that amount is the basic

30

amount of that income for the accounting period grossed up by reference to the

applicable rate for the relevant tax year (see section 946).

(4)   

That gross amount is treated as having borne income tax by deduction at that

rate.

(5)   

So far as the estate income is not paid from sums within section 963(3) or (4),

35

the amount of estate income treated as arising in the accounting period is the

basic amount of that income for that period.

 
 

Corporation Tax Bill
Part 10 — Miscellaneous income
Chapter 3 — Beneficiaries’ income from estates in administration

445

 

Basic amount of estate income: general calculations rules

943     

Absolute interests

(1)   

The basic amount of estate income relating to a company’s absolute interest in

the whole or part of the residue of an estate for an accounting period before the

final accounting period is the lower of—

5

(a)   

the total of all sums paid in the accounting period in respect of that

interest, and

(b)   

the amount of the company’s assumed income entitlement for the

accounting period in respect of it.

(2)   

The basic amount for the final accounting period is equal to the amount of the

10

company’s assumed income entitlement for that accounting period 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 the final accounting period is reduced—

15

(a)   

where the company 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 948 to 952 for the meaning of references to assumed income

20

entitlement and residuary income of an estate.

(5)   

See sections 947 and 949(2) for the meaning of aggregate income of an estate

and allowable estate deductions respectively.

(6)   

This section is subject to sections 953 to 956 (successive interests).

944     

Limited interests

25

(1)   

The basic amount of estate income relating to a company’s limited interest in

the whole or part of the residue of an estate for an accounting period is the total

of the sums within section 939(2)(b), (3)(c) and (4)(c) for that period.

(2)   

This does not apply, and section 958 applies instead, if the limited interest is

one to which section 957 (successive interests: holders of limited interests)

30

applies.

945     

Discretionary interests

The basic amount of estate income relating to a company’s discretionary

interest in the whole or part of the residue of an estate for an accounting period

is the total of the payments made in the accounting period in exercise of the

35

discretion in favour of the company.

946     

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 941 and 942 depends on the rate at

which income tax is borne by the aggregate income of the estate for the relevant

40

tax year (see subsection (5)).

 
 

Corporation Tax Bill
Part 10 — Miscellaneous income
Chapter 3 — Beneficiaries’ income from estates in administration

446

 

(2)   

If the aggregate income of the estate all bears income tax at the same rate, the

applicable rate is that rate.

(3)   

If—

(a)   

different parts of the aggregate income of the estate bear income tax at

different rates, and

5

(b)   

the same rate applies to all the income from which section 962 treats the

basic amount as having been paid,

   

the applicable rate is that rate.

(4)   

If—

(a)   

different parts of the aggregate income of the estate bear income tax at

10

different rates, and

(b)   

different rates apply to different parts of the income from which section

962 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.

15

(5)   

In this Chapter “the relevant tax year” in relation to an amount of estate

income, means the tax year in which the amount of estate income would be

treated as arising if—

(a)   

the references in this Chapter to accounting periods were references to

tax years, and

20

(b)   

section 950(3) (apportionment between accounting periods) were

ignored.

947     

Aggregate income of the estate

(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

25

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

30

on which such tax would have been charged for the tax year if—

(i)   

it was income of a UK resident who was ordinarily 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

35

under section 410(4) (stock dividends) of ITTOIA that would be

charged to income tax under Chapter 5 of Part 4 of that Act if income

arising to personal representatives were so charged (see section 411 of

that Act),

(d)   

in a case where section 419(2) of ITTOIA applies (release of loans to

40

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 of that Act 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 of ITTOIA if the

45

condition in section 466(2) had been met (gains from contracts for life

insurance).

 
 

Corporation Tax Bill
Part 10 — Miscellaneous income
Chapter 3 — Beneficiaries’ income from estates in administration

447

 

(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

5

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

10

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

15

(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

20

such a gift.

Further provisions for calculating estate income relating to absolute interests

948     

Assumed income entitlement

(1)   

Whether a company has an assumed income entitlement for an accounting

period in respect of an absolute interest in the whole or part of the residue of

25

an estate depends on the results of the following steps.

Step 1

   

Find the amount of the company’s share of the residuary income of the estate

that is attributable to that interest for that accounting period and each previous

accounting period during which the company had that interest (see sections

30

949 to 951).

Step 2

   

If the estate is a UK estate in relation to any tax year by reference to which the

amount of that share for any accounting period is determined under section

950, deduct from that amount income tax on that amount at the applicable rate

35

for that year (see section 952).

Step 3

   

Add together the amounts found under step 1 after making any deductions

necessary under step 2.

Step 4

40

   

Add together the basic amounts relating to the company’s absolute interest in

respect of which the company was liable for corporation tax for all previous

accounting periods (or would have been so liable if the company had been a

company liable for corporation tax for those accounting periods).

 
 

Corporation Tax Bill
Part 10 — Miscellaneous income
Chapter 3 — Beneficiaries’ income from estates in administration

448

 

(2)   

For the purposes of this Chapter the company has an assumed income

entitlement for the accounting period 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—

5

section 954 (successive absolute interests), and

section 955 (successive interests: assumed income entitlement of holder of

absolute interest following limited interest).

949     

Residuary income of the estate

(1)   

For the purposes of this Chapter the residuary income of an estate for a tax year

10

is the aggregate income of the estate for that year, less the allowable estate

deductions for that year.

(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(3) of IHTA 1984: exclusion of interest on unpaid

15

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

20

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.

25

(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

30

income of the estate for that year.

950     

Shares of residuary income of estate

(1)   

In the case of a company which has an absolute interest in the whole of the

residue of an estate for a whole tax year, the company’s share of the residuary

income of the estate in respect of that interest for that year is equal to the whole

35

of that income for that year.

(2)   

In the case of a company which—

(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

40

part of the tax year,

   

the company’s share of the residuary income of the estate for that year is a

proportionate part of that income for that year.

 
 

Corporation Tax Bill
Part 10 — Miscellaneous income
Chapter 3 — Beneficiaries’ income from estates in administration

449

 

(3)   

The company’s share of the residuary income of an estate in respect of an

absolute interest for each of the accounting periods (if more than one)

comprising a tax year is found by apportioning the company’s share of the

residuary income of the estate for that year between the accounting periods.

(4)   

Subsections (1) and (2) are subject to section 951 (reduction in share of

5

residuary income of estate).

951     

Reduction in share of residuary income of estate

(1)   

This section applies if a company 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 company’s shares of the residuary income of the estate

10

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 subsection (5) applies).

15

(2)   

In the final accounting period the company’s share of the residuary income of

the estate is to be reduced by that excess.

(3)   

If that excess is greater than the company’s share of that income for the final

accounting period, the company’s share of that income for the previous

accounting period is to be reduced, and so on.

20

(4)   

If subsection (3) applies, all necessary adjustments and repayments of

corporation tax are to be made.

(5)   

For the purposes of calculating the total mentioned in subsection (1)(b)—

(a)   

if the estate is a UK estate in relation to a tax year in which a sum is paid,

the sum is to be grossed up by reference to the basic rate for that year,

25

and

(b)   

if the estate is a UK estate in relation to the final tax year, a sum payable

at the end of the administration period is to be grossed up by reference

to the basic rate for that year.

(6)   

For the application of this section where two or more absolute interests in the

30

whole or the same part of the residue are held successively by different

persons, see section 954(5) and (6).

952     

Applicable rate for determining assumed income entitlement (UK estates)

(1)   

The applicable rate by reference to which income tax on a company’s share of

the residuary income of the estate is calculated for the purposes of step 2 of the

35

calculation in section 948(1) depends on the rate at which income tax is borne

by the aggregate income of the estate for the tax year in question.

(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

40

different rates, the applicable rate is the rate that applies to the income to which

the company’s share of the residuary income of the estate relates.

 
 

Corporation Tax Bill
Part 10 — Miscellaneous income
Chapter 3 — Beneficiaries’ income from estates in administration

450

 

(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 company’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

5

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.

(6)   

Section 650(1) of ITTOIA 2005 (absolute interests) applies for the purposes of

subsection (5) in the case of any person who is not a company chargeable to

corporation tax.

10

Successive interests

953     

Introduction

(1)   

Sections 954 to 959 relate to cases where 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.

15

(2)   

For the purposes of this section and those sections, two interests are held

successively even where one is not held immediately before or after the other.

(3)   

It is assumed for the purposes of those sections—

(a)   

that each of the persons holding the interests in question is a company

within the charge to corporation tax (but without prejudice to the

20

references to interests ceasing otherwise than by death), and

(b)   

that in the case of a person who is not a company the person’s

accounting periods correspond with tax years.

954     

Successive absolute interests

(1)   

This section applies if two or more absolute interests in the whole or part of the

25

residue of an estate are held successively during the administration period by

different persons.

(2)   

In determining whether a company with a later such interest (“the later

holder”) has an assumed income entitlement in respect of that interest and, if

so, its amount—

30

(a)   

the later holder’s share of the residuary income of the estate in respect

of that interest for any accounting period 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

35

as including the basic amounts relating to any previous such interest.

(3)   

In applying subsection (2), all determinations under that subsection or section

955(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.

40

(4)   

A company which is a previous holder in the final accounting period is to be

taxed for that period, in relation to the interest as to which that company is a

previous holder, as if that period were not the final accounting period, and the

later holder’s assumed income entitlement is to be calculated accordingly (or,

 
 

 
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