Corporation Tax Bill

House of Commons

Session 2008 - 09
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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
15
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
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.
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(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).
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(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,