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PART 5 continued CHAPTER 5 continued
(2) The sum is treated as the income of the settlor for the tax year so far as the amount of the sum falls within the amount of income available up to the end of the year.
(3) The sum is treated as the income of the settlor for the following year so far as the amount of the sum—
(a) is not treated under subsection (2) as the settlor’s income for the tax year in which it is paid, and
(b) falls within the amount of the income available up to the end of the following year.
(4) Subsection (3) also applies for each subsequent year up to a maximum of 10 years subsequent to the tax year in which the sum is paid.
(5) For this purpose the reference in subsection (3)(a) to being treated under subsection (2) as the settlor’s income for the tax year in which the capital sum is paid is a reference to being treated under subsection (2) or (3) as the settlor’s income for that year and any other year before the subsequent year in question.
(6) For the meaning of certain expressions used in this section, see—
section 634 (meaning of “capital sum” and “sums paid to settlor”),
section 635 (amount of available income),
section 636 (calculation of undistributed income), and
section 637 (qualifications to section 636).
(7) For other provisions, see—
section 638 (capital sums paid by way of loan or repayment of loan),
section 639 (loans to participators in close companies), and
section 640 (grossing-up of deemed income).
(1) In this Chapter “capital sum” means—
(a) any sum paid by way of loan or repayment of a loan, and
(b) any other sum which—
(i) is paid otherwise than as income, and
(ii) is not paid for full consideration in money or money’s worth.
(2) But this is subject to subsections (3) to (6).
(3) It does not include any sum which could not have become payable to the settlor except—
(a) in one of the circumstances mentioned in subsection (2) of section 625, or
(b) on the death under the age of 25 of any person of the kind mentioned in subsection (3) of that section.
(4) It does include a sum treated as a capital sum by subsection (5) below.
(5) Any sum which—
(a) is paid by the trustees of a settlement to a third party—
(i) at the settlor’s direction, or
(ii) as a result of the assignment by the settlor of the settlor’s right to receive the sum, or
(b) is otherwise paid, or applied by, the trustees for the benefit of the settlor,
is treated as a capital sum paid to the settlor by the trustees.
(6) Subsection (5) does not apply to any sum which would, apart from that subsection, be treated as a capital sum paid to the settlor.
(7) References in sections 633 to 638 to sums paid to the settlor include references to sums paid to—
(a) the spouse of the settlor, or
(b) the settlor (or the spouse of the settlor) jointly with another person.
(1) For the purposes of section 633 the amount of income available up to the end of any tax year is, in relation to any capital sum paid as mentioned in subsection (1) of that section by the trustees of a settlement, calculated as follows.
(2) Add together the amount of income arising under the settlement in that year and any previous year which has not been distributed.
(3) Deduct from that figure—
(a) the amount of that income taken into account under section 633 in relation to that sum in any previous year or years,
(b) the amount of that income taken into account under section 633 in relation to any other capital sums paid to the settlor in any year before that sum was paid,
(c) any income arising under the settlement in that year or any previous year which has been treated as income of the settlor under section 624 or 629, and
(d) an amount equal to the sum of tax at the rate applicable to trusts on—
(i) the total amount of income arising under the settlement in that year and any previous year which has not been distributed, less
(ii) any income of the kind mentioned in paragraph (c).
(4) See sections 636 and 637 for how to calculate amounts of undistributed income.
(1) For the purposes of section 635, income arising under a settlement in any tax year is treated as income which has not been distributed so far as it exceeds the total amount of—
(a) the sums to which subsection (2) applies,
(b) the expenses to which subsection (4) applies, and
(c) if the trustees of the settlement are trustees for charitable purposes, the amount to which subsection (6) applies.
(2) This subsection applies to such sums paid in the tax year to any persons by the trustees of the settlement as—
(a) are treated in that year (otherwise than under section 633) as the income of those persons for income tax purposes, or
(b) would be so treated if those persons were domiciled, resident and ordinarily resident in the United Kingdom and the sums had been paid to them there.
(3) Subsection (2) is subject to section 637(1).
(4) This subsection applies to any expenses of the trustees of the settlement paid in the tax year which, in the absence of any express provision of the settlement, would be properly chargeable to income.
(5) Subsection (4)—
(a) does not apply to expenses so far as they are included in the sums mentioned in subsection (2), and
(b) is subject to section 637(2) to (7).
(6) This subsection applies to the amount by which—
A > B
where—
A is any income arising under the settlement in the tax year in respect of which exemption from tax may be granted under section 505 of ICTA (charities: general), and
B is the total amount of any such sums or expenses as are mentioned in subsections (2) and (4) paid in that year which are properly chargeable to the income.
(1) Section 636(2) does not apply—
(a) to any interest paid by the trustees of the settlement, or
(b) to any sums paid to—
(i) a body corporate connected with the settlement, or
(ii) the trustees of another settlement made by the settlor or by the trustees of the settlement.
(2) Section 636(4) applies to any interest paid by the trustees of the settlement subject to subsections (3) to (7).
(3) The whole of any interest paid by the trustees of the settlement is excluded from subsection (4) of section 636 if no sums within subsection (2) of that section were paid to any person other than the settlor or the spouse of the settlor.
(4) If any sum within section 636(2) was so paid, the relevant fraction of any interest paid by the trustees of the settlement is excluded from section 636(4).
(5) The relevant fraction is—
where—
A is the whole of the income arising under the settlement in the tax year, less the sums referred to in subsection (4) of section 636 apart from subsections (2), (3) and (6) of this section, and
B is so much of the sums within subsection (2) of that section as is paid to persons other than the settlor or the spouse of the settlor.
(6) Subsections (2) to (5) do not apply to—
(a) interest in respect of which relief from tax is allowable under any provision of the Income Tax Acts, or
(b) interest payable to the settlor or the spouse of the settlor if living with the settlor.
(7) Nothing in subsections (2) to (6) affects the liability to tax of the person receiving or entitled to the interest.
(8) For the purposes of this Chapter, a body corporate is treated as connected with a settlement in any tax year if at any time in that year—
(a) it is a close company (or only is not a close company because it is non-UK resident) and the participators then include the trustees of the settlement, or
(b) it is controlled by a company falling within paragraph (a).
(1) No part of a capital sum which is paid to a settlor by way of loan is treated under section 633 as the settlor’s income for any tax year after the tax year in which the whole of the sum is repaid.
(2) Subsection (3) applies if—
(a) a capital sum is paid to the settlor by way of loan, and
(b) one or more capital sums have previously been paid to the settlor by way of loan and wholly repaid.
(3) The amount of the capital sum mentioned in subsection (2)(a) is treated for the purposes of section 633 as equal to the amount (if any) by which it exceeds so much of the capital sum or sums previously paid as has already been treated as the settlor’s income under that section.
(4) Subsection (5) applies if—
(a) a capital sum is paid to the settlor by way of complete repayment of a loan, and
(b) an amount not less than the capital sum is subsequently lent by the settlor to the trustees of the settlement.
(5) No part of the capital sum is treated under section 633 as the settlor’s income for any tax year after that in which the further loan is made.
(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 be so included under section 633 in respect of the loan or advance.
(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 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 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 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 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.
(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 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 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 year, and
(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.
(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
(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 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—
(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).
(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
(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
section 643 (interpretation of sections 641 and 642).
(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 on which it was made.
(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
(b) by the settlor to the body corporate connected with the settlement or to any other body corporate so connected.
(1) Any question in section 641 or 642 whether a capital sum has been paid—
(a) to the settlor by a body corporate, or
(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).
(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 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 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.
(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 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 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 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 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 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.
(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),
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.
(1) The Inland Revenue may by notice require any party to a settlement to provide 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.
(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 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 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 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 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 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.
(1) Income tax is charged on estate income.
(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 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 only of sums within section 680(3) or (4).
Income Tax (Trading and Other Income) Act 2005