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Income Tax (Trading and Other Income) Act 2005

Type Public General Act

Publication 2005-03-24

Last updated 2026-01-20

State In force

Department Statute Law Database

Source legislation.gov.uk

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(2) The use is treated for the purposes of sections 587 to 596 as having taken place under a licence.

(3) Sums paid in respect of the use are treated for the purposes of sections 587 to 596 as having been paid under a licence.

Relief from income tax on patent income

Relief for expenses: patent income

600

(1) Relief may be claimed under this section for—

(a) inventor's expenses, and

(b) patent application and maintenance expenses.

(2) In this section “inventor's expenses” means expenses which—

(a) have been incurred by an individual who, alone or jointly, devised an invention for which a patent has been granted, and

(b) are attributable to devising it.

(3) In this section “patent application and maintenance expenses” means expenses incurred by a person in connection with—

(a) the grant or maintenance of a patent,

(b) the extension of the term of a patent, or

but not incurred for the purposes of any trade carried on by the person.

(4) Relief may not be claimed under this section for patent application and maintenance expenses unless they are expenses which would, if incurred for the purposes of a trade, have been allowable as a deduction in calculating the profits of the trade.

(5) Relief may not be claimed under this section for any expenses if relief for them is given under—

(a) section 582 (calculation of income for the purposes of the charge to tax on royalties etc.), or

(b) any other provision of the Tax Acts.

(6) This section needs to be read with section 603 (contributions to expenditure).

How relief is given under section 600

601

(1) This section sets out how relief for expenses is given where a person makes a claim under section 600.

(2) The amount of the expenses must be deducted from or set off against the person's income from patents for the tax year in which the expenses were incurred.

(2A) The deduction or set-off is given effect at Step 2 of the calculation in section 23 of ITA 2007.

(3) If the amount to be allowed is greater than the amount of the person's income from patents for that tax year, the excess must be deducted from or set off against the person's income from patents for the next tax year, and so on for subsequent tax years, without the need for a further claim.

(4) In this section “income from patents” means—

(a) royalties or other sums paid in respect of the use of a patent (whether chargeable under this Chapter or otherwise),

(b) amounts on which tax is payable under section 587, 593 or 594, and

(i) section 472(5) of CAA 2001 (patent allowances: balancing charges), or

(ii) paragraph 100 of Schedule 3 to that Act (balancing charges in respect of pre-1st April 1986 expenditure on the purchase of patent rights).

(5) In this section references to a person's income from patents are to the income after any allowance has been deducted from or set off against it under section 479 of CAA 2001 (certain allowances against income from patents).

Payments received after deduction of tax

602

In accordance with section 848 of ITA 2007, a sum representing income tax deducted under either of the following Chapters from a payment of royalties or other income within this Chapter is treated as income tax paid by the recipient —

Chapter 6 of Part 15 of ITA 2007 (deduction from annual payments and patent royalties), and

Chapter 7 of that Part (deduction from other payments connected with intellectual property).

Supplementary

Contributions to expenditure

603

(1) For the purposes of sections 585, 588 and 600, the general rule is that a person (“A”) is to be regarded as not having incurred expenditure so far as it has been, or is to be, met (directly or indirectly) by—

(a) a public body, or

(b) a person other than A.

(2) In this Chapter “public body” means the Crown or any government, local authority or other public authority (whether in the United Kingdom or elsewhere).

(3) The general rule does not apply to the expenses mentioned in section 588(2)(b) (incidental expenses incurred by a seller of patent rights).

(4) The general rule is subject to the exception in section 604.

Contributions not made by public bodies nor eligible for tax relief

604

(1) A person (“A”) is to be regarded as having incurred expenditure (despite section 603(1)) so far as the requirements in subsections (2) and (3) are met in relation to the expenditure.

(2) The first requirement is that the person meeting A's expenditure (“B”) is not a public body.

(3) The second requirement is that—

(a) no allowance can be made under Chapter 2 of Part 11 of CAA 2001 (contribution allowances) in respect of B's expenditure, and

(b) the expenditure is not allowed to be deducted in calculating the profits of a trade, profession or vocation carried on by B.

(4) When determining for the purposes of subsection (3)(a) whether such an allowance can be made, assume that B is within the charge to tax.

Exchanges

605

(1) In this Chapter references to the sale of property include the exchange of property.

(2) In this section—

references to property include know-how, and

references to the sale of property include the disposal of know-how.

(3) For the purposes of subsection (1), any provision of this Chapter referring to a sale has effect with the necessary modifications, including, in particular, those in subsections (4) and (5).

(4) References to the proceeds of sale and to the price include the consideration for the exchange.

(5) References to capital sums included in the proceeds of sale include references to so much of the consideration for the exchange as would have been a capital sum if it had been a money payment.

Apportionment where property sold together

606

(1) Any reference in this Chapter to the sale of property includes the sale of that property together with other property.

(2) In this section—

references to property include know-how, and

references to the sale of property include the disposal of know-how.

(3) For the purposes of subsection (1), all property sold as a result of one bargain is to be treated as sold together even though—

(a) separate prices are, or purport to be, agreed for separate items of that property, or

(b) there are, or purport to be, separate sales of separate items of that property.

(4) If an item of property is sold together with other property, then, for the purposes of the charges under sections 583 and 587—

(a) the net proceeds of the sale of that item are treated as being so much of the net proceeds of the sale of all the property as, on a just and reasonable apportionment, is attributable to that item, and

(b) the expenditure incurred on the provision or purchase of that item is treated as being so much of the consideration given for all the property as, on a just and reasonable apportionment, is attributable to that item.

Questions about apportionments affecting two or more persons

607

(1) Any question about the way in which a sum is to be apportioned under section 606 must be determined in accordance with section 563(2) to (6) of CAA 2001 (procedure for determining certain questions affecting two or more persons) if it materially affects two or more taxpayers.

(2) For the purposes of subsection (1) a question materially affects two or more taxpayers if at the time when the question falls to be determined it appears that the determination is material to the liability to tax (for whatever period) of two or more persons.

Meaning of “capital sums” etc.

608

Section 4 of CAA 2001 (meaning of “capital sums” etc.) applies in relation to this Chapter as it applies in relation to that Act.

Chapter 3 — Films and sound recordings: non-trade businesses

Charge to tax on films and sound recordings businesses

609

(1) Income tax is charged on income from a business involving the exploitation of films or sound recordings where the activities carried on do not amount to a trade.

Such a business is referred to in this Chapter as a “non-trade business”.

(2) Expressions which are used in this Chapter and in Chapter 9 of Part 2 (trade profits: films and sound recordings) have the same meaning in this Chapter as they do in that Chapter.

Income charged

610

(1) Tax is charged under this Chapter on the full amount of the income arising in the tax year.

(2) See sections 612 and 613 for provision about the calculation of the amount of income charged under this Chapter.

(3) This section is subject to Part 8 (foreign income: special rules).

Person liable

611

The person liable for any tax charged under this Chapter is the person receiving or entitled to the income.

Calculation of income

612

(1) This section applies for calculating the amount of income charged under this Chapter.

(2) Expenses wholly and exclusively incurred for the purpose of generating the income are deductible.

(3) If an expense is incurred for more than one purpose, a deduction may be made for any identifiable part or identifiable proportion of the expense which is incurred wholly and exclusively for the purpose of generating the income.

(4) Expenses which would not have been allowable as a deduction in calculating the profits of a trade, if they had been incurred for its purposes, are not deductible under this section.

(5) Expenses for which any kind of relief is given under any other provision of the Income Tax Acts are not deductible under this section.

(6) Any relief given as a result of section 613 is additional to the relief under this section.

Application of trading income rules to non-trade businesses

613

The provisions of Chapter 9 of Part 2 apply in relation to non-trade businesses as they apply in relation to trades but as if—

(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(b) references to anything not constituting trading stock of a trade were omitted.

Chapter 4 — Certain telecommunication rights: non-trading income

Charge to tax on certain telecommunication rights of a non-trader

614

(1) Income tax is charged on income derived from a relevant telecommunication right that is not used or held for the purposes of a trade, profession or vocation.

(2) “Relevant telecommunication right” has the same meaning as in Chapter 10 of Part 2 (see section 146).

Income charged

615

(1) Tax is charged under this Chapter on the full amount of the income arising in the tax year.

(2) See section 617 for provision about the calculation of the amount of certain income charged under this Chapter.

(3) This section is subject to Part 8 (foreign income: special rules).

Person liable

616

The person liable for any tax charged under this Chapter is the person receiving or entitled to the income.

Deductions in calculating certain income charged

617

(1) This section applies for calculating the amount of income charged under this Chapter other than annual payments.

(2) The following sections apply as they apply for the purpose of calculating the profits of a trade, profession or vocation—

(a) section 147 (expenditure and receipts in respect of relevant telecommunication rights treated as revenue in nature), and

(b) section 148 (credits or debits arising from revaluation in respect of relevant telecommunication rights).

(3) Expenses wholly and exclusively incurred for the purpose of generating the income are deductible.

(4) If an expense is incurred for more than one purpose, a deduction may be made for any identifiable part or identifiable proportion of the expense which is incurred wholly and exclusively for the purpose of generating the income.

(5) Expenses which would not have been allowable as a deduction in calculating the profits of a trade, if they had been incurred for its purposes, are not deductible under this section.

(6) Expenses for which any kind of relief is given under any other provision of the Income Tax Acts are not deductible under this section.

(7) The frequency with which payments are made is ignored in determining whether they are annual payments for the purposes of this Chapter.

Payments received after deduction of tax

618

In accordance with section 848 of ITA 2007, a sum representing income tax deducted under Chapter 6 of Part 15 of that Act from an annual payment within this Chapter is treated as income tax paid by the recipient.

Chapter 5 — Settlements: amounts treated as income of settlor or family

Charge to tax under Chapter 5

619

(1) Income tax is charged on—

(a) income which is treated as income of a settlor as a result of section 624 (income where settlor retains an interest),

(b) income which is treated as income of a settlor as a result of section 629 (income paid to relevant children of settlor),

(c) capital sums which are treated as income of a settlor as a result of section 633 (capital sums paid to settlor by trustees of settlement), ...

(d) capital sums which are treated as income of a settlor as a result of section 641 (capital sums paid to settlor by body connected with settlement) , and

(e) benefits whose amount or value is treated as income of the settlor or a close family member as a result of section 643A (benefits provided out of protected foreign-source income or transitional trust income), ...

(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2) For the purposes of Chapter 2 of Part 2 of ITA 2007 (rates at which income tax is charged) , where income of another person is treated as income of the settlor and is charged to tax under subsection (1)(a) or (b) above, it shall be charged in accordance with whichever provisions of the Income Tax Acts would have been applied in charging it if it had arisen directly to the settlor.

Meaning of “settlement” and “settlor”

620

(1) In this Chapter—

“settlement” includes any disposition, trust, covenant, agreement, arrangement or transfer of assets (except that it does not include a charitable loan arrangement), and

“settlor”, in relation to a settlement, means any person by whom the settlement was made.

(2) A person is treated for the purposes of this Chapter as having made a settlement if the person has made or entered into the settlement directly or indirectly.

(3) A person is, in particular, treated as having made a settlement if the person—

(a) has provided funds directly or indirectly for the purpose of the settlement,

(b) has undertaken to provide funds directly or indirectly for the purpose of the settlement, or

(4) This Chapter applies to settlements wherever made.

(5) In this section—

“charitable loan arrangement” means any arrangement so far as it consists of a loan of money made by an individual to a charity either—for no consideration, orfor a consideration which consists only of interest, and

“charity” includes the Trustees of the National Heritage Memorial Fund, and the Historic Buildings and Monuments Commission for England.......

Income charged and person liable

Income charged

621

Tax is charged under this Chapter on all income, capital sums and benefits to which section 619(1) applies.

Person liable

622

The person liable for any tax charged under this Chapter is the settlor , but this is subject to section 643A (under which a close member of the settlor’s family may instead be liable).

Rules for calculating income

Calculation of income

623

(1) This section applies for the purpose of calculating the liability to tax of an individual charged under this Chapter.

(2) The same deductions and reliefs are allowed as would have been allowed if the amount treated as the individual's income as a result of this Chapter had been received by the individual as income.

Income treated as income of settlor: retained interests

Income where settlor retains an interest

624

(1) Income which arises under a settlement is treated for income tax purposes as the income of the settlor and of the settlor alone if it arises—

(a) during the life of the settlor, and

(b) from property in which the settlor has an interest.

(1A) If the settlement is a trust, expenses of the trustees are not to be used to reduce the income of the settlor.

(2) For more on a settlor having an interest in property, see section 625.

(3) For exceptions to the rule in subsection (1), see—

section 626 (exception for outright gifts between spouses or civil partners),

section 627 (exceptions for certain types of income), and ...

section 628 (exception for gifts to charities), ...

Settlor’s retained interest

625

(1) A settlor is treated for the purposes of section 624 as having an interest in property if there are any circumstances in which the property or any related property—

(a) is payable to the settlor or the settlor's spouse or civil partner ,

(b) is applicable for the benefit of the settlor or the settlor's spouse or civil partner , or

(2) Subsection (1) does not apply if the only circumstances are one or more of—

(a) the bankruptcy of a person who is, or may become, beneficially entitled to the property or any related property,

(b) the assignment of the property or any related property by such a person,

(c) the charging of (or, in Scotland, the granting of a right in security over) the property or any related property by such a person,

(d) in the case of a marriage settlement or civil partnership settlement, the death of both parties to the marriage or civil partnership and of all or any of the children of the family of the parties to the marriage or civil partnership, and

(e) the death of a child of the settlor who had become beneficially entitled to the property or any related property at not more than 25 years old.

(2A) In subsection (2) “child of the family”, in relation to parties to a marriage or civil partnership, means a child of one or both of them.

(3) Subsection (1) does not apply if—

(a) there are no circumstances in which the property or any related property can become payable or applicable as mentioned in that subsection during the life of a person other than—

(i) the bankruptcy of the person, or

(ii) the assignment or charging of the person's interest in the property or any related property, and

(b) the person is alive and under 25 years old.

(4) In subsection (1) “the settlor's spouse or civil partner” does not include—

(a) a spouse or civil partner from whom the settlor is separated under an order of a court or a separation agreement,

(b) a spouse or civil partner from whom the settlor is separated where the separation is likely to be permanent,

(d) a person to whom the settlor is not married but may later marry or a person of whom the settlor is not a civil partner but of whom the settlor may later be a civil partner .

(5) In this section “related property”, in relation to any property, means income from that property or any other property directly or indirectly representing proceeds of, or of income from, that property or income from it.

Exception for outright gifts between spouses

626

(1) The rule in section 624(1) does not apply in respect of an outright gift—

(a) of property from which income arises,

(b) made by one spouse to the other or one civil partner to the other , and

(2) Condition A is that the gift carries a right to the whole of the income.

(3) Condition B is that the property is not wholly or substantially a right to income.

(4) A gift is not an outright gift for the purposes of this section if—

(a) it is subject to conditions, or

(b) there are any circumstances in which the property, or any related property—

(i) is payable to the giver,

(ii) is applicable for the benefit of the giver, or

(iii) will, or may become, so payable or applicable.

(5) “Related property” has the same meaning in this section as in section 625.

Exceptions for certain types of income

627

(1) The rule in section 624(1) does not apply to income which—

(a) arises under a settlement made by one party to a marriage or civil partnership by way of provision for the other—

(i) after the dissolution or annulment of the marriage or civil partnership , or

(ii) while they are separated under an order of a court, or under a separation agreement, or where the separation is likely to be permanent, and

(b) is payable to, or applicable for the benefit of, the other party.

(2) The rule in section 624(1) does not apply to income which consists of—

(a) annual payments made by an individual for commercial reasons in connection with the individual's trade, profession or vocation,

(b) qualifying donations for the purposes of Chapter 2 of Part 8 of ITA 2007 (gift aid) , or

(3) In subsection (2)(c) “relevant pension scheme” means—

(a) a registered pension scheme,

(b) a pension scheme established by a government outside the United Kingdom for the benefit, or primarily for the benefit, of its employees (or an annuity acquired using funds held for the purposes of such a pension scheme), or

(c) any pension arrangements of any description prescribed by regulations made under section 11(2)(h) of the Welfare Reform and Pensions Act 1999 (c. 30) or Article 12(2)(h) of the Welfare Reform and Pensions (Northern Ireland) Order 1999 (S.I. 1999/3147 (N.I. 11)).

(4) The rule in section 624(1) does not apply in relation to income which—

(a) arises under a settlement, and

(b) originates from any settlor who was not an individual.

Exception for gifts to charities

628

(1) The rule in section 624(1) does not apply to any qualifying income which arises under a UK settlement if—

(a) it is given by the trustees to a charity in the tax year in which it arises, or

(b) it is income to which a charity is entitled under the terms of the trust.

(2) In this section “qualifying income” means—

(a) income which must be accumulated,

(b) income which is payable at the discretion of the trustees or any other person . . .

(2A) The cases covered by subsection (2)(b) include cases where the trustees have, or any other person has, any discretion over one or more of the following matters—

(a) whether, or the extent to which, the income is to be accumulated,

(b) the persons to whom the income is to be paid, and

(3) Subsection (4) applies if in any tax year qualifying income which arises under a UK settlement from different sources exceeds the total of—

(a) the amount of that income which falls within subsection (1), and

(b) the amount of that income which falls within section 630(1) (comparable exception for income of relevant children of settlor).

(4) The amount of the qualifying income from different sources which falls within subsection (1) above is rateably apportioned between those sources.

(5) This does not affect the operation of any requirement that the whole, or any specified part, of the income from a particular source is to be given to a charity.

(6) In this section—

“charity” includes the Trustees of the National Heritage Memorial Fund, and the Historic Buildings and Monuments Commission for England......

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

“UK settlement” means a settlement the trustees of which are resident ... in the United Kingdom.

Income treated as income of settlor: relevant children

Income paid to unmarried minor children of settlor

629

(1) Income which arises under a settlement is treated for income tax purposes as the income of the settlor and of the settlor alone for a tax year if, in that year and during the life of the settlor, it—

(a) is paid to, or for the benefit of, a relevant child of the settlor, or

(b) would otherwise be treated (apart from this section) as income of a relevant child of the settlor.

(2) Subsection (1) does not apply to income which is treated as income of the settlor under section 624.

(3) Subsection (1) does not apply in relation to a child's relevant settlement income in any tax year if, in that year, the total amount of that income does not exceed £100.

(4) In subsection (3) a child's “relevant settlement income” means income—

(a) which is paid to or for the benefit of, or otherwise treated as income of, the child, and

(b) which (apart from subsection (3)) would be treated as income of the settlor under subsection (1).

(5) Subsection (1) does not apply so far as provided by section 630 (exception for gifts to charities) ....

(6) See—

section 631 for the treatment for the purposes of subsection (1) of retained or accumulated income, and

section 632 for the treatment for the purposes of this section and section 631 of certain deemed income connected to offshore income gains.

(7) In this section and sections 631 and 632—

(a) “child” includes a stepchild,

(b) “minor” means a person under the age of 18 years, and “minor child” is to be read accordingly, . . .

(d) “relevant child” means a minor child who is unmarried or not in a civil partnership.

(8) Subsection (1) is subject to section 28A of FA 2005.

Exception for gifts to charities

630

(1) The rule in section 629(1) does not apply to any qualifying income which arises under a UK trust if—

(a) it is given by the trustees to a charity in the tax year in which it arises, or

(b) it is income to which a charity is entitled under the terms of the trust.

(2) Subsection (3) applies if in any tax year qualifying income which arises under a UK trust from different sources exceeds the total of—

(a) the amount of that income which falls within subsection (1), and

(b) the amount of that income which falls within section 628(1) (comparable exception for income where settlor retains an interest).

(3) The amount of the qualifying income from different sources which falls within subsection (1) above is rateably apportioned between those sources.

(4) This does not affect the operation of any requirement that the whole, or any specified part, of the income from a particular source is to be given to a charity.

(5) In this section “charity”, “qualifying income” and “UK trust” have the same meaning as in section 628.

Retained and accumulated income

631

(1) This section applies if—

(a) the trustees of a settlement retain or accumulate income arising under the settlement, and

(b) a payment is subsequently made in connection with the settlement to, or for the benefit of, a child of the settlor who is unmarried or not in a civil partnership.

(2) The payment is treated for the purposes of section 629(1) as a payment of income, but only so far as there is retained or accumulated income available.

(3) For the purposes of subsection (1) a payment is made in connection with a settlement if it is made by virtue of or in consequence of—

(a) the settlement, or

(b) any enactment relating to the settlement.

(4) For the purposes of subsection (2) retained or accumulated income is available at any time when—

$$A>B$where—A is the total amount of the income which has arisen under the settlement since it was made, andB is the total amount of disregarded income.$

(5) In subsection (4) “disregarded income” means any income arising under the settlement since it was made which has been—

(a) treated as income of the settlor,

(b) paid (whether as income or capital) to, or for the benefit of, a beneficiary other than a relevant child of the settlor,

(d) treated as income of an unmarried minor child of the settlor, and subject to income tax, in any of the tax years 1995-96, 1996-97 and 1997-98, or

(e) applied in meeting expenses of the trustees which—

(i) were properly chargeable to income, or

(ii) would have been so chargeable but for any express terms of the settlement.

(6) For the purposes of subsection (5)(d), income arising under the settlement that is treated as income of the child is subject to income tax so far as it does not exceed the taxable amount.

(7) In subsection (6) “the taxable amount”, in relation to a tax year, means the amount by which—

$$TI>TAD$where—TI is the child's total income for income tax purposes, andTAD is the total amount of allowances and deductions that may be set against the the child's total income or net income at Step 2 or 3 of the calculation in section 23 of ITA 2007.$

Offshore income gains

632

(1) This section applies if—

(a) an offshore income gain accrues in respect of a disposal by a trustee of assets held by the trustee for a minor, and

(b) the minor would be absolutely entitled as against the trustee but for being a minor.

(2) The income which, under regulation 17 of the Offshore Funds (Tax) Regulations 2009 (S.I. 2009/3001) (charge to tax), is treated as arising by reference to that gain is treated for the purposes of sections 629 and 631 as paid to the minor.

(3) In this section “offshore income gain” has the same meaning as in Chapter 5 of Part 2 of those Regulations.

Capital sums treated as income of settlor: trustees' payments

Capital sums paid to settlor by trustees of settlement

633

(1) Any capital sum paid directly or indirectly in any tax year by the trustees of a settlement to the settlor is treated for income tax purposes as follows.

(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).

Meaning of “capital sum” and “sums paid to settlor”

634

(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 or civil partner of the settlor, or

(b) the settlor (or the spouse or civil partner of the settlor) jointly with another person.

Amount of available income

635

(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 trust rate 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.

(5) See also section 643ZB(2) (which provides for certain income not to be counted towards available income for the purposes of this section).

Calculation of undistributed income

636

(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

(2) This subsection applies to ... sums paid in the tax year to any persons by the trustees of the settlement that are payments of ... income, or sums treated as representing ... income, and that—

(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 treated as mentioned in paragraph (a) if those persons were ... 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$where—A is any ... income arising under the settlement in the tax year in respect of which exemption from tax may be granted under any provision to which subsection (7) applies, andB is the total amount of any such sums or expenses as are mentioned in subsections (2) and (4) paid in that year which are properly chargeable to the income.$

(7) This subsection applies to the following provisions of ITA 2007—

section 521(4) (gifts entitling donor to gift-aid relief),

section 522(5) (gifts of money from companies),

section 523(5) (payments from other charities),

section 524 (profits etc of charitable trades),

section 529 (profits from fund-raising events),

section 530 (profits from lotteries),

section 531 (property income etc),

section 532 (savings and investment income),

section 533 (public revenue dividends),

section 536 (miscellaneous income), and

section 537 (income from estates in administration).

Qualifications to section 636

637

(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 relevant interest paid by the trustees of the settlement subject to subsections (3) to (7).

(3) The whole of any relevant 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 or civil partner of the settlor.

(4) If any sum within section 636(2) was so paid, the relevant fraction of any relevant interest paid by the trustees of the settlement is excluded from section 636(4).

(5) The relevant fraction is—

$$A-BA$where—A is the whole of the ... income arising under the settlement in the tax year, less the sums referred to in subsection (4) of section 636 apart from subsections (2), (3) and (6) of this section, andB is so much of the sums within subsection (2) of that section as is paid to persons other than the settlor or the spouse or civil partner of the settlor.$

(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 or civil partner 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.

(7A) In this section “relevant interest” means interest which, in the absence of any express provision of the settlement, would be properly chargeable to ...income.

(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).

Trustees' payments: further provisions

Capital sums paid by way of loan or repayment of loan

638

(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.

Loans to participators in close companies

639

(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.

Grossing-up of deemed income

640

(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 trust rate 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 trust rate 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, ...

(ii) 40%, if the relevant tax year is the year 2004-05 or any subsequent tax year up to and including the year 2009-2010, ...

(iii) 50%, if the relevant tax year is the year 2010-2011 , 2011-12 or 2012-13, and .

(iv) 45%, if the relevant year is the year 2013-14 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.

Capital sums treated as income of settlor: connected bodies

Capital sums paid to settlor by body connected with settlement

641

(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).

Exception for certain loans or repayments of loans

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.

Interpretation of sections 641 and 642

643

(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 449 of CTA 2010) associated with another body corporate may be treated as paid by, or made to, the other body corporate.

Settlements by two or more settlors

Application to settlements by two or more settlors

644

(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.

Property or income originating from settlor

645

(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 sections 627 and 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.

(2A) If the same property has been provided by more than one settlor for the purposes of the settlement, so much of the property as is attributable to each settlor on a just and reasonable apportionment is treated for the purposes of this section as provided by that 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.

Other supplementary provisions

Adjustments between settlor and trustees etc.

646

(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 an officer of Revenue and Customs to provide the settlor with a certificate specifying—

(a) the tax year in which income was treated as arising to the settlor under section 624 or 629 (as the case may be),

(b) the amount of the income in respect of which the settlor has paid tax, and

(3) A certificate provided under subsection (2) is conclusive evidence of the facts stated in it.

(4) Subsection (5) applies if a settlor chargeable to tax under section 624 or 629 obtains a repayment by reason of the payment of the tax by—

(a) any trustee, or

(b) any other person to whom the income is payable by virtue of or as a result of the settlement.

(5) The settlor must pay an amount equal to the repayment 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.

(6A) For the purpose of subsection (5), the settlor may require an officer of Revenue and Customs to provide the settlor with a certificate specifying—

(a) that the settlor has obtained a repayment as mentioned in subsection (4), ...

(b) the amount of the repayment , and

(6B) A certificate provided under subsection (6A) is conclusive evidence of the facts stated in it.

(7) Subject to subsections (6A) and (6B), 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 tribunal and, notwithstanding the provisions of sections 11 and 13 of the Tribunals, Courts and Enforcement Act 2007, the decision of the tribunal 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.

Power to obtain information

647

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income arising under a settlement

648

(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 ...resident there.

(2) But if, in a tax year, the settlor is not UK resident, 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 actually entitled to it, would not be chargeable to income tax by deduction or otherwise because of not being UK resident.

(3) And if, for the tax year 2024-25 or an earlier tax year, section 809B, 809D or 809E of ITA 2007 (remittance basis) applied to the settlor, references in this Chapter to income arising under a settlement include in relation to any specified foreign income arising under the settlement in that tax year only such of it as is remitted to the United Kingdom (in that tax year or any subsequent tax year) in circumstances such that, if the settlor remitted it, the settlor would be chargeable to income tax.

(4) See Chapter A1 of Part 14 of ITA 2007 for the meaning of “remitted to the United Kingdom” etc.

(5) Where subsection (3) applies the remitted income is treated for the purposes of this Chapter as arising under the settlement in the tax year in which it is remitted.

(6) In subsection (3), “specified foreign income” means income that would be relevant foreign income if it were the income of a UK resident individual.

Chapter 6 — Beneficiaries' income from estates in administration

Charge to tax on estate income

649

(1) Income tax is charged on estate income.

(1A) But income tax is not charged on estate income so far as that income consists of a basic amount which section 679 treats as having been paid from de minimis aggregate income.

(1B) In subsection (1A), “de minimis aggregate income” means aggregate income of an estate which is treated as bearing income tax at 0% because of section 680(1A).

(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.

Absolute, limited and discretionary interests

650

(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.

Meaning of “UK estate” and “foreign estate”

651

(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 ....

(4) For the purposes of conditions A and B sums within section 664(2)(c) or (d) or 680(4) (sums not liable to tax and 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 664(2)(c) or (d) or 680(4).

Types of estate income

Estate income: absolute interests in residue

652

(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.

Meaning of “the administration period” and “the final tax year”

653

(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.

Estate income: limited interests in residue

654

(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.

Estate income: discretionary interests in residue

655

(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

Income charged: UK estates

656

(1) In the case of a UK estate, the charge to tax under section 649 is a charge 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 ... (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).

Income charged: foreign estates

657

(1) In the case of a foreign estate, the charge to tax under section 649 is a charge 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(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 ... (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(4), the amount of estate income treated as arising in the tax year is the basic amount of that income for that year.

Special rules for foreign income

658

(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.

Person liable

659

(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

Basic amount of estate income: absolute interests

660

(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).

Basic amount of estate income: limited interests

661

(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.

Basic amount of estate income: discretionary interests

662

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.

The applicable rate for grossing up basic amounts of estate income

663

(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 was borne by the parts of the aggregate income of the estate from which section 679 treats the basic amount as having been paid.

(2) If the same rate was borne by all of the income from which section 679 treats the basic amount as having been paid, the applicable rate is that rate.

(3) If different rates were borne by 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.

The aggregate income of the estate

664

(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 ..., 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.

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