Income Tax (Trading and Other Income) Act 2005

636 Calculation 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.