C2PART XV SETTLEMENTS
F2C1CHAPTER 1C LIABILITY OF TRUSTEES
Pt. 15 Ch. 1C heading substituted for heading before s. 686 (with effect in accordance with s. 74(2) of the amending Act) by Finance Act 1995 (c. 4), Sch. 17 para. 12
Pt. 15 Ch. 1C modified (6.4.2005 with effect in accordance with s. 883(1) of the modifying Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), s. 457(1)(3) (with Sch. 2)
F1. . .
Cross-heading before s. 686 replaced by Pt. 15 Ch. 1C heading (with effect in accordance with s. 74(2) of the amending Act) by Finance Act 1995 (c. 4), Sch. 17 para. 12
C5686 Liability to additional rate tax of certain income of discretionary trusts.
C31
F41A
The rate applicable to trusts F13, in relation to any year of assessment for which income tax is charged, shall be 34 per cent. or such other rate as Parliament may determine; and, for the purposes of assessments for the year 1993-94 and in relation to years of assessment for which tax at the basic rate and the additional rate was separately chargeable, references to the charging of income with tax at the rate applicable to trusts shall be taken to include references to the charging of income with tax both at the basic rate and at the additional rate.
2
This section applies to income arising to trustees in any year of assessment so far as it—
a
is income which is to be accumulated or which is payable at the discretion of the trustees or any other person (whether or not the trustees have power to accumulate it); and
F10b
is not, before being distributed, either—
i
the income of any person other than the trustees, or
ii
treated for any of the purposes of the Income Tax Acts as the income of a settlor; and
F5c
is not income arising under a trust established for charitable purposes only or income from investments, deposits or other property held—
i
for the purposes of a fund or scheme established for the sole purpose of providing relevant benefits within the meaning of section 612; or
ii
for the purposes of a personal pension scheme (within the meaning of section 630) which makes provision only for benefits such as are mentioned in section 633; F14. . .
d
F14. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F152AA
The rate at which income tax is chargeable on so much of any income arising to trustees in any year of assessment as—
a
is income to which this section applies, and
b
is treated in accordance with section 689B as applied in defraying the expenses of the trustees in that year which are properly chargeable to income (or would be so chargeable but for any express provisions of the trust),
shall be the rate at which it would be chargeable on that income apart from this section, instead of the rate applicable to trusts.
F62A
For the purposes of this section where—
a
any trustees have expenses in any year of assessment (“management expenses”) which are properly chargeable to income or would be so chargeable but for any express provisions of the trust, and
b
there is income arising to them in that year (“the untaxed income”) which does not bear income tax for that year by reason wholly or partly of the trustees not having been resident in the United Kingdom or being deemed under any arrangements under section 788, or any arrangements having effect by virtue of that section, to have been resident in a territory outside the United Kingdom,
there shall be disregarded for the purposes of F16subsection (2AA) above such part of the management expenses as bears the same proportion to all those expenses as the untaxed income bears to all the income arising to the trustees in that year.
F122B
For the purposes of subsection (2A) above where the income tax borne by any income arising to trustees is limited in accordance with section 128 of the M2Finance Act 1995 (limit on income chargeable on non-residents), the income arising to the trustees which shall be taken not to bear tax by reason wholly or partly of their not having been resident in the United Kingdom shall include so much of any income arising to them as—
a
is excluded income within the meaning of that section; and
b
is not income which is treated for the purposes of subsection (1)(b) of that section as income the tax on which is deducted at source.
3
This section also applies to sums apportioned to the trustees under section 423and treated, under 426(2)as applied by subsection (4)below, as income received by the trusteesF7.
4
Sections 426(1)and
(2), 427and 428shall, with the omission in section 426(2)(a)of the words following “the apportionment relates”, the substitution of“
income
”
for “total income” and all other necessary modifications, apply to a sum apportioned to trustees as they apply to sums apportioned to an individual; and section 429shall apply accordinglyF8.
C45
For the purposes of this section sums paid or credited to trustees in any year of assessment in respect of dividends or interest payable in respect of shares in or deposits with or loans to a building society being sums in respect of which the society is required to account for and pay an amount in accordance with regulations under section 476(1) shall be treated as income for that year received by the trustees after deduction of income tax from a corresponding gross amount.
In this subsection expressions used in section 476 have the same meanings as in that section.
C66
In this section “trustees” does not include personal representatives; but where personal representatives, on or before the completion of the administration of the estate, pay to trustees any sum representing income which, if personal representatives were trustees within the meaning of this section, would be income to which this section applies, that sum shall be deemed to be paid to the trustees as income and to have borne income tax at the F9applicable rate.
This subsection shall be construed as if it were contained in Part XVI.
Pt. 15 modified (with effect in accordance with s. 105(1) of the modifying Act) by Finance Act 1996 (c. 8), Sch. 13 para. 6(1) (with Sch. 13 para. 16, Sch. 15)