Income Tax (Trading and Other Income) Act 2005

This is our most popular package with UK residents, and includes: -

The registration of your company from scratch using your own registered office address, and appoint your own candidates to the roles of director, secretary (if needed), and shareholder;

The standard capital on formation is £1.00, this is divided into 1.00 ordinary share valued at £1.00 (a minimum of one share must be issued);

The formation of a limited company usually takes as little as four to six hours from the time that your application and payment are received by Coddan;

The government fee for incorporation is included in the price of this package;

The following documents, which need to be printed and signed, will be emailed to you upon formation of your company: -

A certificate of incorporation (requires PDF file reader);

The memorandum & articles of association (requires MS-Word file reader);

The first meeting of the board of directors (requires MS-Word file reader);

Share certificates and a company register (requires MS-Word file reader).

E-Quick Package

£ 32.00

No Annual Charges

The Deluxe limited company package is a fast and easy option, it is ideal for the UK, EU, and international small to medium businesses who wish to appoint a nominee director and a nominee secretary in order to maintain anonymity, and it includes: -

Incorporation of your company from scratch using one of our registered office addresses in London, our nominee director and nominee secretary. We can appoint your own candidate(s) to the role of shareholder(s), or you can appoint a nominee sharholder provided by Coddan;

The standard capital on formation is £1.00, this is divided into 1.00 ordinary share valued at £1.00 (a minimum of one share must be issued);

The formation of a limited company usually takes as little as four to six hours from the time that your application and payment are received by Coddan;

The government fee for incorporation is included in the price of this package;

The provision of a registered office address for 12 months is included in the price of this package (our registered office address service is charged annually);

The provision of a nominee secretary for 12 months is included in the price of this package (our nominee secretary service is charged annually);

The provision of a nominee director for 12 months is also included in the price of this package (our nominee director service is charged annually);

The following two hard bound copies of corporate documents, will be posted to you upon formation of your company: -

A laminated copy of the certificate of incorporation of your company;

A hard bound copy of the memorandum and articles of association;

A hard bound copy of the minutes of the first meeting of directors;

Share certificates, and your company register;

The general power of attorney signed by a nominee director;

Pre-signed, undated resignation letter from a nominee director;

The agreement for the provision of nominee service and indemnification of nominee.

Deluxe Package

£ 557.00

Annual Maintenance Fee £525.00

A private company limited by shares in England and Wales must have at least one director, one shareholder, and may have a secretary.

You need at least one person to form this type of company. If there is only one director, and that director is a natural person in your company, that director can also act as the secretary.

A company must have at least one director who is a natural person. This requirement is met if the office of director is held by a natural person as a corporation sole or otherwise by virtue of an office.

You can register a sole director' company, if you are familiar with the secretaries duties and responsibilities, because all of them belongs to a sole director.

The directors and secretary of your company can also be shareholders.

The Companies Act imposes no restriction on the minimum age of company directors. However Companies House will actively discourage the appointment of anyone under the age of 16 from taking up a company directorship on the grounds that the individuals concerned may not fully understand the legal liabilities that go with the position and for the most part will not have the experience necessary to perform the duties of a company director.

Under the Companies Act 2006, there is no restriction on any or all of the members/shareholders being from an overseas country (i.e. outside the United Kingdom in terms of residency, domicile, citizenship, place of incorporation or all or any of those concepts).

There is no requirement for the officers of your company to be UK citizens or residents, nor for them to hold valid work permits.

Owning, or being an officer of a UK company does not, however, grant you any right to live or work in the UK if you are a foreign national.

Your company must have a registered office address within England or Wales; this is the official address of your company and will be on the public record as such.

Your company must hold its official company documents at its registered office address: its register of shareholders, and its constitutional documents.

So long as you maintain a registered office address in England or Wales, you can conduct your business from any place in the world: you do not have to run your business from your registered office address.

Legal Requirements to Register an LTD

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Income Tax (Trading and Other Income) Act 2005

2005 Chapter 5 - continued

PART 5, MISCELLANEOUS INCOME - continued

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CHAPTER 6

BENEFICIARIES' INCOME FROM ESTATES IN ADMINISTRATION

Charge to tax on estate income

649

Charge to tax on estate income

(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.

650

Absolute, limited and discretionary interests

(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.

651

Meaning of "UK estate" and "foreign estate"

(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).

Types of estate income

652

Estate income: absolute interests in residue

(1) Income is treated as arising in a tax year from a person's absolute interest in the whole or part of the residue of an estate if-

(a) the person has an assumed income entitlement for the tax year in respect of the interest (see sections 665 to 670), and

(b) condition A or B is met.

(2) Condition A is that a payment is made in respect of the interest in the tax year and before the end of the administration period (see section 653).

(3) Condition B is that the tax year is the final tax year (see section 653).

(4) Income treated as arising as a result of this section is estate income for the purposes of this Chapter.

653

Meaning of "the administration period" and "the final tax year"

(1) In this Chapter "the administration period", in relation to the estate of a deceased person, means the period beginning with the deceased's death and ending with the completion of the administration of the estate.

(2) In the application of subsection (1) to Scotland, the reference to the completion of the administration is to be taken as a reference to the date at which, after discharge of, or provision for, liabilities falling to be met out of the deceased's estate, the free balance held in trust for the residuary legatees or for the persons with the right to the intestate estate has been ascertained.

(3) In this Chapter "the final tax year" means the tax year in which the administration period ends.

654

Estate income: limited interests in residue

(1) Income is treated as arising in a tax year from a person's limited interest in the whole or part of the residue of an estate in cases A, B and C.

(2) Case A is where-

(a) the interest has not ceased before the beginning of the tax year, and

(b) a sum is paid in respect of the interest in that year and before the end of the administration period.

(3) Case B is where-

(a) the tax year is the final tax year,

(b) the interest has not ceased before the beginning of that year, and

(4) Case C is where-

(a) the tax year is a year before the final tax year,

(b) the interest ceases in the tax year, and

(c) a sum is paid in respect of the interest in a later tax year but before the end of the administration period, or remains payable in respect of it at the end of that period.

(5) This section does not apply to limited interests to which section 674 (successive interests: holders of limited interests) applies.

(6) Income treated as arising as a result of this section or section 674 is estate income for the purposes of this Chapter.

655

Estate income: discretionary interests in residue

(1) Income is treated as arising in a tax year from a person's discretionary interest in the whole or part of the residue of an estate if a payment is made in the tax year in exercise of the discretion in that person's favour.

(2) Income treated as arising as a result of this section is estate income for the purposes of this Chapter.

Income charged and person liable

656

Income charged: UK estates

(1) In the case of a UK estate, tax is charged under section 649 on the amount of estate income treated as arising in the tax year.

(2) That amount is the basic amount of that income for the tax year (see subsection (4)) grossed up by reference to the applicable rate for that year (see section 663).

(3) The gross amount is treated as having borne income tax at that rate.

(4) In this Chapter "the basic amount", in relation to estate income, has the meaning given by-

(a) section 660 (basic amount of estate income: absolute interests),

(b) section 661 (basic amount of estate income: limited interests),

(d) section 675 (basic amount of estate income: successive limited interests).

657

Income charged: foreign estates

(1) In the case of a foreign estate, tax is charged under section 649 on the full amount of estate income treated as arising in the tax year.

(2) That amount depends on whether the estate income arising in the tax year is paid from sums within section 680(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 amount of that income for the tax year grossed up by reference to the applicable rate for that year (see section 663).

(4) That gross amount is treated as having borne income tax at that rate.

(5) So far as the estate income is not paid from sums within section 680(3) or (4), the amount of estate income treated as arising in the tax year is the basic amount of that income for that year.

658

Special rules for foreign income

(1) The charge to tax under section 649 on the amount of income arising in a tax year is subject to Part 8 (foreign income: special rules).

(2) For the purposes of section 830(1) (meaning of "relevant foreign income") amounts charged to tax under section 649-

(a) are treated as arising from a source outside the United Kingdom if the estate is a foreign estate, and

(b) are treated as not arising from such a source if the estate is a UK estate.

659

Person liable

(1) If the estate income is from a person's absolute interest or limited interest, that person is liable for any tax charged under section 649 unless subsection (3) or (4) provides that another person is liable.

(2) If the estate income is from a discretionary interest, the person in whose favour the discretion is exercised in making the payment in question is liable for any tax charged under section 649.

(3) If, in a case where the estate income is from an absolute interest-

(a) section 671 (successive absolute interests) applies, or

(b) section 672 (successive interests: assumed income entitlement of holder of absolute interest following limited interest) applies and the income is treated as arising because of that section,

the person by reference to whose assumed income entitlement the estate income is determined is liable for any tax charged under section 649.

(4) If, in a case where the estate income is from a limited interest-

(a) section 673(1) applies and the income is treated as arising because of section 673(2) (payment in respect of a previous limited interest), or

(b) section 674 (successive interests: holders of limited interests) applies,

the person entitled to receive the payment in question is liable for any tax charged under section 649.

Basic amount of estate income: general calculation rules

660

Basic amount of estate income: absolute interests

(1) The basic amount of estate income relating to a person's absolute interest in the whole or part of the residue of an estate for a tax year before the final tax year is the lower of-

(a) the total of all sums paid in the tax year in respect of that interest, and

(b) the amount of the person's assumed income entitlement for the tax year in respect of it.

(2) The basic amount for the final tax year is equal to the amount of the person's assumed income entitlement for that year 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 that year is reduced-

(a) where the person 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 665 to 670 for the meaning of references to assumed income entitlement and residuary income of an estate.

(5) See sections 664 and 666(2) for the meaning of aggregate income of an estate and allowable estate deductions respectively.

(6) This section is subject to sections 671 to 673 (successive interests).

661

Basic amount of estate income: limited interests

(1) The basic amount of estate income relating to a person's limited interest in the whole or part of the residue of an estate for a tax year is the total of the sums within section 654(2)(b), (3)(c) and (4)(c) for that year.

(2) This does not apply, and section 675 applies instead, if the limited interest is one to which section 674 (successive interests: holders of limited interests) applies.

662

Basic amount of estate income: discretionary interests

The basic amount of estate income relating to a person's discretionary interest in the whole or part of the residue of an estate for a tax year is the total of the payments made in the tax year in exercise of the discretion in favour of the person.

663

The 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 656 and 657 depends on the rate at which income tax is borne for the tax year by the aggregate income of the estate.

(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

(b) the same rate applies to all the income from which section 679 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 different rates, and

(b) different rates apply to different parts of the income from which section 679 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.

664

The 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 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 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 under section 410(4) (stock dividends) that would be charged to income tax under Chapter 5 of Part 4 if income arising to personal representatives were so charged (see section 411),

(d) in a case where section 419(2) applies (release of loans to 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 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 if the condition in section 466(2) had been met (gains from contracts for life insurance).

(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 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 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

(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 such a gift.

Further provisions for calculating estate income relating to absolute interests

665

Assumed income entitlement

(1) Whether a person has an assumed income entitlement for a tax year 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 person's share of the residuary income of the estate that is attributable to that interest for that tax year and each previous tax year during which the person had that interest (see sections 666 to 669).

Step 2

If the estate is a UK estate in relation to any tax year for which an amount has been found under step 1, deduct from that amount income tax on that amount at the applicable rate for that year (see section 670).

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 person's absolute interest in respect of which the person was liable for income tax for all previous tax years (or would have been so liable if the person had been a person liable for income tax for those years).

(2) For the purposes of this Chapter the person has an assumed income entitlement for the tax year 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 672 (successive interests: assumed income entitlement of holder of absolute interest following limited interest).

666

The 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.

This is subject to section 669 (reduction in residuary income: inheritance tax on accrued income).

(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 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.

667

Shares of residuary income of estate

(1) In the case of a person who has an absolute interest in the whole of the residue of an estate for a whole tax year, the person'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 person who-

(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 person's share of the residuary income of the estate is a proportionate part of that income for that year.

(3) This section is subject to section 668 (reduction in share of residuary income of estate).

668

Reduction in share of residuary income of estate

(1) This section applies if a person 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 person'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 tax year the person's share of the residuary income of the estate is to be reduced by that excess.

(3) If that excess is greater than the person's share of that income for the final tax year, that person's share of that income for the previous tax year is to be reduced, and so on.

(4) If subsection (3) applies all necessary adjustments and repayments of income 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 671(5) and (6).

669

Reduction in residuary income: inheritance tax on accrued income

(1) This section applies if on the death of a person ("D") income which accrued before D's death ("pre-death income") is taken into account both-

(a) in determining the value of D's estate for the purposes of inheritance tax charged on D's death, and

(b) in calculating the residuary income of D's estate for a tax year.

(2) A reduction is made in the residuary income of D's estate for that tax year in ascertaining the extra liability, if any, of a person with an absolute interest in the whole or part of the residue of D's estate or any other estate to which that residuary income is relevant.

(3) A person's extra liability is the amount by which the person's liability to income tax exceeds the amount it would be if-

(a) income charged at the higher rate were charged-

(i) in the case of income within section 1A(1A)(c) of ICTA (income chargeable at the lower rate instead of the starting rate or the basic rate), at the lower rate, and

(ii) in any other case, at the basic rate, and

(b) income charged at the dividend upper rate were charged at the dividend ordinary rate.

(4) The amount of the reduction under subsection (2) is calculated as follows:

Step 1

Calculate the net pre-death income by subtracting from the pre-death income any liabilities which have been taken account both-

(b) in calculating the residuary income of D's estate for the tax year.

Step 2

Calculate the inheritance tax attributable to net pre-death income by multiplying the inheritance tax to be charged by-

NPDI

where-

NPDI is the net pre-death income, and

VE is the value of D's estate.

Step 3

Gross up the inheritance tax attributable to net pre-death income by reference to the basic rate for the tax year.

(5) The amount of pre-death income taken into account in determining the value of D's estate is taken to be the actual amount of income accruing before D's death, less income tax at the basic rate for the tax year in which D died.

(6) Subsection (5) applies even if the income so accruing was not valued separately or its amount was not known at the date of D's death.

(7) For the purposes of this section, the amounts agreed between the persons liable for inheritance tax and the Inland Revenue, or determined in proceedings between them, as the value of the estate and the amount of inheritance tax to be charged are conclusive.

(8) Evidence of those amounts and of any facts relevant to their calculation may be given by the production of a document that appears to be a certificate from the Inland Revenue.

670

Applicable rate for determining assumed income entitlement (UK estates)

(1) The applicable rate by reference to which income tax on a person's share of the residuary income of the estate for a tax year is calculated for the purposes of step 2 of the calculation in section 665(1) depends on the rate at which income tax is borne by the aggregate income of the estate for the year.

(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 person'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 person'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.

Special rules for successive interests

671

Successive absolute interests

(1) This section applies if two or more absolute interests in the whole or the same part of the residue of an estate are held successively during the administration period by different persons.

(2) In determining whether a person with a later such interest ("the later holder") has an assumed income entitlement in respect of that interest and, if so, its amount-

(a) the later holder's share of the residuary income of the estate in respect of that interest for any tax year 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 as including the basic amounts relating to any previous such interest.

(3) In applying subsection (2), all determinations under that subsection or section 672(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.

(4) A person who is a previous holder in the final tax year is to be taxed in that year, in relation to the interest as to which that person is a previous holder, as if that year were not the final tax year, and the later holder's assumed income entitlement in that year is to be calculated accordingly.

(5) The calculation under section 668(1)(a) and (b) (amount of reduction in the share of the residuary income of the person with an absolute interest at the end of the administration period) is to be made by reference to all the absolute interests taken together.

(6) If the amount resulting from that calculation is greater than the total amount of the reductions which can be made under section 668(2) and (3), the share of the residuary income of the estate of the last previous holder of the interest for the last tax year in which that last holder had that interest is to be reduced, and so on.

(7) For the purposes of this section and sections 672 to 676, two interests are held successively even where one is not held immediately before or after the other.

(8) It is assumed for those purposes that each of the persons holding the interests in question is a person liable to income tax.

672

Successive interests: assumed income entitlement of holder of absolute interest following limited interest

(1) This section applies if-

(a) 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,

(b) each later interest arises or is created on the cessation of the previous interest otherwise than by death,

(d) at least one of the interests preceding that interest is a limited interest.

(2) Rules A and B apply to determine in relation to such an absolute interest-

(a) whether the person with the interest has an assumed income entitlement in respect of the interest, and

(b) if so, its amount.

(3) Rule A is that the person's share of the residuary income of the estate in respect of the absolute interest for any tax year is treated as including any amount which would be included in it if-

(a) the interest had subsisted throughout the period when any such limited interest subsisted, and

(b) no such limited interest had ever subsisted.

(4) Rule B is that the basic amounts relating to the absolute interest are treated as including the basic amounts relating to any such limited interest.

673

Successive interests: payments in respect of limited interests followed by absolute interests

(1) This section applies if-

(a) 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,

(b) each later interest arises or is created on the cessation of the previous interest otherwise than by death,

(d) at least one of the interests preceding that interest is a limited interest.

(2) A sum to which a person ("P") with such an absolute interest is entitled in respect of any such limited interest which is paid while P has the absolute interest is treated as paid in respect of the absolute interest (and not the limited interest).

(3) Subsection (4) applies if-

(a) P's absolute interest ceases during the administration period, and

(b) a sum to which P is entitled in respect of any such limited interest-

(i) is paid after the absolute interest ceases but before the end of the administration period, or

(ii) remains payable at the end of it.

(4) This Chapter applies as respects any such sum as if the limited interest had continued to subsist while that absolute interest subsisted and had been held by P.

(5) Subsection (4) is subject to subsection (6).

(6) For the purposes only of section 668 (reduction in share of residuary income of estate), any such sum is treated as paid or payable in respect of the absolute interest.

674

Successive interests: holders of limited interests

(1) This section applies if-

(a) 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,

(b) the earlier or, if there are more than two, the earliest of the interests is a limited interest, and

(2) Income is treated as arising from a limited interest in the whole or part of the residue of the estate in a tax year in cases A, B and C.

(3) Case A is where-

(a) one of the successive interests subsists at the beginning of the tax year,

(b) a sum is paid in respect of one of the interests in that year and before the end of the administration period, and

(c) a person who has or has had one of the interests which is a limited interest ("a limited holder") is entitled to receive the payment.

(4) Case B is where-

(a) the tax year is the final tax year,

(b) one of the successive interests subsists at the beginning of that year,

(d) a limited holder is entitled to receive the payment.

(5) Case C is where-

(a) the tax year is a year before the final tax year,

(b) the last of the successive interests ceases in the tax year,

(i) paid in respect of one of the interests in a later tax year but before the end of the administration period, or

(ii) remains payable in respect of it at the end of that period, and

(d) a limited holder is entitled to receive the payment.

675

Basic amount of estate income: successive limited interests

The basic amount of estate income relating to a limited interest within section 674 for a tax year is the total of the sums within section 674(3)(b), (4)(c) and (5)(c) for that year.

676

Apportionments

(1) Such apportionments as are just and reasonable are to be made for the purposes of this Chapter if-

(a) the part of a residuary estate in which an interest within any of the provisions specified in subsection (2) subsists does not wholly correspond with the part in which another such interest held successively subsists, or

(b) one of those interests is in the whole of the residuary estate and the other is only in part of it.

(2) The provisions are-

section 672 (successive interests: assumed income entitlement of holder of absolute interest following limited interest),

section 673 (successive interests: payments in respect of limited interests followed by absolute interests),

section 674 (successive interests: holders of limited interest), and

section 675 (basic amount of estate income: successive limited interests).

Relief where foreign estates have borne UK income tax

677

Relief where UK income tax borne by foreign estate: absolute interests

(1) This section applies if-

(a) an estate is a foreign estate in relation to a tax year,

(b) United Kingdom income tax has been charged on a person for the tax year on estate income treated as arising from the estate under section 652 (estate income: absolute interests in residue), and

(2) If the person makes a claim under this section, the income tax charged on the person on that estate income is to be reduced by an amount equal to-

	A
T ×
	B

where-

T is the income tax charged on the person,

A is so much of the aggregate income of the estate as has already borne United Kingdom income tax for the tax year, and

B is the aggregate income of the estate for the tax year.

678

Relief where UK income tax borne by foreign estate: limited and discretionary interests

(1) This section applies if-

(a) an estate is a foreign estate in relation to a tax year,

(b) United Kingdom income tax has been charged on a person for the tax year on estate income from the estate treated as arising under-

(i) section 654 (estate income: limited interests in residue), or

(ii) section 655 (estate income: discretionary interests in residue), and

(2) If the person makes a claim under this section, the income tax charged on the person on that estate income is to be reduced by an amount equal to-

	A − C
T ×
	B − C

where-

T is the income tax charged on the person,

A is so much of the aggregate income of the estate as has already borne United Kingdom income tax for the tax year,

B is the aggregate income of the estate for the tax year, and

C is the amount of United Kingdom income tax already borne by the aggregate income of the estate for the tax year.

General

679

Income from which basic amounts are treated as paid

(1) The part of the aggregate income of the estate from which a basic amount is treated as paid is determined by applying assumptions A and B in that order.

(2) Assumption A is that if there are different persons with interests in the residue of the estate, payments in respect of their basic amounts are paid out of the different parts of the aggregate income of the estate in such proportions as are just and reasonable for their different interests.

(3) Assumption B is that payments are made from those parts in the following order-

(a) income bearing income tax at the basic rate,

(b) income bearing income tax at the lower rate, and

(4) If some, but not all, of the aggregate income of the estate is income treated under section 680 as bearing income tax, assumption C is applied before assumptions A and B.

(5) Assumption C is that the basic amount is paid from income that is not within section 680 before it is paid from income within that section.

(6) Assumptions A and B then apply-

(a) first to determine the part of the income not within that section from which the basic amount is paid, and

(b) then to determine the part of the income within that section from which the basic amount is paid.

680

Income treated as bearing income tax

(1) This section has effect for the purposes of-

section 663 (the applicable rate for grossing up basic amounts of estate income),

section 670 (applicable rate for determining assumed income entitlement (UK estates)), and

section 679 (income from which basic amounts are treated as paid).

(2) If the aggregate income of the estate includes a sum within subsection (3) or (4), the sum is treated as bearing income tax at the rate specified for it in that subsection.

(3) The following sums are treated as bearing income tax at the dividend ordinary rate-

(a) a sum charged under Chapter 3 of Part 4 (dividends etc. from UK resident companies etc.), or

(b) a sum that is part of the aggregate income of the estate because of falling within-

(i) section 664(2)(c) (stock dividends), or

(ii) section 664(2)(d) (release of loan to participator in close company where debt due from personal representatives).

(4) A sum that is part of the aggregate income of the estate because of falling within section 664(2)(e) (gains from life insurance contracts etc.) is treated as bearing income tax at the lower rate.

(5) Income tax treated as borne under section 656(3) or 657(4) (gross amount of estate income treated as bearing tax at the applicable rate) is not repayable so far as the basic amount of the estate income in question is paid from sums within this section.

681

Transfers of assets etc. treated as payments

(1) For the purposes of this Chapter-

(a) a transfer of assets, or

(b) the appropriation of assets by personal representatives to themselves,

is treated as the payment of an amount equal to the assets' value at the date of transfer or appropriation.

(2) The set off or release of a debt is treated for the purposes of this Chapter as the payment of an amount equal to it.

(3) If at the end of the administration period-

(a) there is an obligation to transfer assets to any person, or

(b) personal representatives are entitled to appropriate assets to themselves,

an amount equal to the assets' value at that time is treated as payable then for the purposes of this Chapter.

(4) If at the end of the administration period-

(a) there is an obligation to release or set off a debt owed by any person, or

(b) personal representatives are entitled to release or set off a debt in their own favour,

a sum equal to the debt is treated as payable then for the purposes of this Chapter.

682

Assessments, adjustments and claims after the administration period

(1) This subsection applies if after the administration period ends it is apparent that a person is liable for income tax on estate income for any tax year who previously appeared not to be so liable or to be liable for tax on a lesser amount.

(2) If subsection (1) applies-

(a) the person may be assessed and taxed for the tax year, and

(b) any relief or additional relief to which the person may be entitled for the tax year is to be allowed if a claim is made.

(3) This subsection applies if after the administration period ends it is apparent that a person who previously appeared to be liable for income tax on estate income for any tax year is not so liable or is liable for tax on a lesser amount.

(4) If subsection (3) applies-

(a) all necessary adjustments and repayments of income tax for the tax year are to be made, and

(b) if the person has been allowed relief which exceeds the relief that could have been given by reference to the amount actually charged for the tax year, income tax is charged on the person for that year under this subsection on the excess.

(5) An assessment or adjustment made for the purposes of this Chapter or a claim made as a result of this Chapter may be made after the end of the period otherwise allowed if it is made on or before the third anniversary of the normal self-assessment filing date for the tax year in which the administration period ends.

Prepared 29 March 2005


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