Income and Corporation Taxes Act 1988

687 Payments under discretionary trusts. U.K.

[F1 (1) Where in any year of assessment [F2 the trustees of a settlement] make a payment to any person in the exercise of a discretion, whether a discretion exercisable by them or by any other person, then if the payment—

(a) is for all the purposes of the Income Tax Acts income of the person to whom it is made (but would not be his income if it were not made to him), or

(b) is treated for those purposes as the income of the settlor by virtue of [F3 section 629 of ITTOIA 2005 (income paid to [F4 relevant] children of settlor)],

the following provisions of this section apply with respect to the payment in lieu of section 348 or 349(1).]

(2) The payment shall be treated as a net amount corresponding to a gross amount from which tax has been deducted at [F5 the rate applicable to trusts] for the year in which the payment is made; and the sum treated as so deducted shall be treated—

(a) as income tax paid by the person to whom the payment is made [F6 or, as the case may be, the settlor]; and

(b) so far as not set off under the following provisions of this section, as income tax assessable on the trustees.

(3) M1 The following amounts, so far as not previously allowed, shall be set against the amount assessable (apart from this subsection) on the trustees in pursuance of subsection (2)(b) above—

[F7 (a) the amount of any tax on income arising to the trustees which (not being income the tax on which falls within paragraphs (a1) to (bc) below) is charged in pursuance of section 686 at the rate applicable to trusts or the [F8 dividend] trust rate;

[F9 (aa1) the amount of any tax on income arising to the trustees which is charged by virtue of section 686D(3) at the basic rate or the lower rate;]

(a1) the amount of tax at a rate equal to the difference between the [F10 dividend] ordinary rate and the [F10 dividend] trust rate on any income of the trustees chargeable under [F11 Chapter 3 of Part 4 of ITTOIA 2005 (dividends etc. from UK resident companies etc.)];

(a2) the amount of tax which, by virtue of section [F12 399 of ITTOIA 2005 (non-UK residents other than eligible non-UK residents receiving qualifying distributions)], is charged, at a rate equal to the difference between the [F13 dividend] ordinary rate and the [F13 dividend] trust rate, on the amount or value of the whole or any part of any qualifying distribution included in the income arising to the trustees;

(aa) the amount of tax which, by virtue of section [F14 400 of that Act (non-qualifying distributions)], is charged, at a rate equal to the difference between the [F15 dividend] ordinary rate and the [F15 dividend] trust rate, on the amount or value of the whole or any part of any non-qualifying distribution included in the income arising to the trustees;]

[F16 (aaa) F17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

[F18 (b) the amount of tax at a rate equal to the difference between the [F19 dividend] ordinary rate and the [F19 dividend] trust rate on any sum treated, under [F20 section 410(3) of ITTOIA 2005 (when stock dividend income arises)], as income of the trustees;]

[F21 (bb) the amount of tax at a rate equal to the difference between the [F19 dividend] ordinary rate and the [F19 dividend] trust rate on any sum treated under section [F22 416(3) of ITTOIA 2005 (income charged on release of loan to participator in close company)] as income of the trustees;

(bc) the amount of tax at a rate equal to the difference between the [F19 dividend] ordinary rate and the [F19 dividend] trust rate on any sum treated under section 686A as income of the trustees;]

(c) the amount of tax at the basic rate on any amount taken for the purposes of sections 426to 428as applied by section 686(4)to be the amount to be excluded from the income of the trustees in accordance with section 427(4) F23 ;

(d) an amount of tax in respect of income found on a claim made by the trustees to have been available to them for distribution at the end of the year 1972-73, which shall be taken to be two-thirds of the net amount of that income;

(e) the amount of any tax on income arising to the trustees by virtue of section 761(1) and charged [F24 at the rate applicable to trusts] by virtue of section 764; and

(f) the amount of any tax on annual profits or gains treated as received by trustees by virtue of section 714(2) or 716(3) of this Act or paragraph 2(2) or (3) of Schedule 22 to the Finance Act 1985 and charged [F24 at the rate applicable to trusts] by virtue of section 720(5) of this Act or paragraph 8(1) of Schedule 23 to that Act;

(g) the amount of any tax on income which arose to the trustees by virtue of section 38(2) of the Finance Act 1974 (development gains) and charged at a rate equal to the basic rate and the additional rate in pursuance of section 43(1) of that Act;

[F25 (h) the amount of any tax on an amount which is treated as income of the trustees by virtue of paragraph 4 of Schedule 4 and is charged to tax [F24 at the rate applicable to trusts] by virtue of paragraph 17 of that Schedule;

(i) the amount of any tax on an amount which is treated as income of the trustees by virtue of paragraph 5 of Schedule 11 to the Finance Act 1989 and is charged to tax [F24 at the rate applicable to trusts] by virtue of paragraph 11 of that Schedule;]

[F26 (j) the amount of any tax on an amount which is treated as income of the trustees by virtue of paragraph 12 of Schedule 10 to the M2 Finance Act 1990 and is charged to tax [F24 at the rate applicable to trusts] by virtue of paragraph 19 of that Schedule;]

[F27 (k) the amount of any tax on an amount which is treated as income of the trustees by virtue of paragraph 1 of Schedule 13 to the Finance Act 1996 and is charged to tax at the rate applicable to trusts by virtue of paragraph 6 of that Schedule;]

[F28 (l) the amount of any tax on an amount which is treated as income of the trustees by virtue of Chapter 8 of Part 4 of ITTOIA 2005 (profits from deeply discounted securities) and is charged to tax at the rate applicable to trusts by virtue of section 457 of that Act;]

[F29 (l) the amount of any income tax determined in accordance with section 26 of the Finance Act 2005;]

but tax on any income represented by amounts paid or credited as mentioned in section 686(5) shall be taken into account under paragraph (a) above only on production of a certificate from the building society concerned specifying those amounts and stating that an amount representing income tax on that income calculated at the basic rate has been or will be accounted for.

[F30 (3A) Paragraphs (a1) to (bc) of subsection (3) above do not apply in relation to income, distributions or sums chargeable to tax by virtue of section 686D(3) at the basic rate, the lower rate or the dividend ordinary rate.]

(4) M3 In this section “trustees” does not include personal representatives within the meaning of section 701(4).

[F31 (5) References in this section to payments include payments in money or money’s worth.]

Textual Amendments

F1 S. 687(1) substituted (with effect in accordance with s. 74(2) of the amending Act) by Finance Act 1995 (c. 4), Sch. 17 para. 14(2)

F2 Words in s. 687(1) substituted (6.4.2006) by Finance Act 2006 (c. 25), Sch. 13 paras. 17, 27(1)

F3 Words in s. 687(1)(b) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 278(2) (with Sch. 2)

F4 Word in s. 687(1)(b) substituted (5.12.2005) by The Tax and Civil Partnership Regulations 2005 (S.I. 2005/3229), regs. 1(1), 94

F5 Words in s. 687(2) substituted (27.7.1993 with effect for the year 1993-1994 and subsequent years of assessment) by 1993 c. 34, s. 79, Sch. 6 paras. 9(1), 25(1)

F6 Words in s. 687(2)(a) inserted (with effect in accordance with s. 74(2) of the amending Act) by Finance Act 1995 (c. 4), Sch. 17 para. 14(3)

F7 S. 687(3)(a)(a1)(a2)(aa) substituted for s. 687(3)(a)(aa) (with effect in accordance with Sch. 4 para. 15(5) of the amending Act) by Finance (No. 2) Act 1997 (c. 58), Sch. 4 para. 15(2)

F8 Word in s. 687(3)(a) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 278(3) (with Sch. 2)

F9 S. 687(3)(aa1) inserted (with effect in accordance with s. 14(5) of the amending Act) by Finance Act 2005 (c. 7), s. 14(3)

F10 Words in s. 687(3)(a1) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 278(4)(a) (with Sch. 2)

F11 Words in s. 687(3)(a1) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 278(4)(b) (with Sch. 2)

F12 Words in s. 687(3)(a2) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 278(5)(a) (with Sch. 2)

F13 Words in s. 687(3)(a2) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 278(5)(b) (with Sch. 2)

F14 Words in s. 687(3)(aa) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 278(6)(a) (with Sch. 2)

F15 Words in s. 687(3)(aa) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 278(6)(b) (with Sch. 2)

F16 S. 687(3)(aaa) inserted (3.5.1994) by Finance Act 1994 (c. 9), Sch. 16 para. 15

F17 S. 687(3)(aaa) repealed (with effect in accordance with Sch. 6 para. 10(2) of the repealing Act) by Finance (No. 2) Act 1997 (c. 58), Sch. 6 para. 10(1), Sch. 8 Pt. 2(11), Note

F18 S. 687(3)(b) substituted (with effect in accordance with Sch. 4 para. 15(5) of the amending Act) by Finance (No. 2) Act 1997 (c. 58), Sch. 4 para. 15(3)

F19 Words in s. 687(3)(b)(bb)(bc) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 278(7) (with Sch. 2)

F20 Words in s. 687(3)(b) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 278(8) (with Sch. 2)

F21 S. 687(3)(bb)(bc) inserted (with effect in accordance with Sch. 4 para. 15(5) of the amending Act) by Finance (No. 2) Act 1997 (c. 58), Sch. 4 para. 15(4)

F22 Words in s. 687(3)(bb) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by virtue of Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 278(9) (with Sch. 2)

F23 Repealed by 1989 s.187and Sch.17 Part Vin relation to accounting periods beginning after 31March 1989

F24 Words in s. 687(3)(e)(f)(h)(i) and (j), as it so has effect, substituted (27.7.1993 with effect for the year 1993-1994 and subsequent years of assessment) by 1993 c. 34, s. 79, Sch. 6 paras. 9(2)(d), 25(1)

F25 1989 s.96(2)in relation to certain deep discount securities and certain deep gain securities from 14March 1989.

F26 S. 687(3)(j) inserted (retrospectively s. 687(3) has effect, and is deemed always to have had effect, as if s. 687(3) included para. (j)) by 1993 c. 34, s. 79(2)

F27 S. 687(3)(k) inserted (with effect in accordance with s. 105(1) of the amending Act) by Finance Act 1996 (c. 8), Sch. 14 para. 35 (with Sch. 15)

F28 S. 687(3)(l) inserted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 278(10) (with Sch. 2)

F29 S. 687(3)(l) inserted (with effect in accordance with s. 45 of the amending Act) by Finance Act 2005 (c. 7), s. 44(1)

F30 S. 687(3A) inserted (with effect in accordance with s. 14(5) of the amending Act) by Finance Act 2005 (c. 7), s. 14(4)

F31 S. 687(5) added (with effect in accordance with s. 74(2) of the amending Act) by Finance Act 1995 (c. 4), Sch. 17 para. 14(4)

Modifications etc. (not altering text)

C1 See 1990 s.30and Sch.5 para.14and s.132and Sch.19 Part IV—words following paragraph (i)repealed as regards an amount paid or credited on or after 6April 1991.

C2 S. 687(3) amended (retrospectively) by 1993 c. 34, s. 79(1)(2), Sch. 6 para. 9(2)(d)

Marginal Citations

M1 Source-1973 s.17(3)(a)-(d), (f), (g); 1975 (No.2) s.34 (6); 1984 s.100(2); 1985 Sch.23 8(3); 1974 Sch.7 8

M2 1990 c. 29.

M3 Source-1973 s.17(5)