Corporation Tax Act 2009

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 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 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 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

  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).

(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—

• 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 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 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 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.

(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 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 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 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.

(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 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 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).

(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.

(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, 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 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 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 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.

(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 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.