Income Tax Act 2007

Chapter 13 Unauthorised unit trusts

941 Deemed payments to unit holders and deemed deductions of income tax

(1) Subsections (2) and (3) apply if a unit holder in an unauthorised unit trust is treated under Chapter 10 of Part 4 of ITTOIA 2005 (distributions from unauthorised unit trusts if the trustees are UK resident) as having received income on a date.

(2) The trustees are treated as making on that date a payment to the unit holder representing the gross amount of the income (see section 548(2) of ITTOIA 2005).

(3) The trustees are also treated as deducting from that payment a sum representing income tax on the gross amount of the income at the basic rate for the tax year in which the payment is made.

(4) Subsection (5) applies if the trustees of an unauthorised unit trust are treated under section 469(4A) of ICTA (distributions from unauthorised unit trusts if the trustees are UK resident) as making an annual payment to a unit holder.

(5) The trustees are also treated as deducting from the annual payment a sum representing income tax on its gross amount (see section 469(4C) of ICTA) at the basic rate for the tax year in which the payment is made.

(6) In this Chapter—

• “deemed deduction” means a deduction within subsection (3) or (5),

• “deemed payment” means a payment within subsection (2) or (4), and

• “the gross amount” means, in relation to a deemed payment, the amount of the payment before the deemed deduction is made from it.

942 Income tax to be collected from trustees

(1) This section applies if in a tax year the trustees of an unauthorised unit trust are treated as making deemed payments.

(2) Income tax is to be collected through trustees' self-assessment returns for the tax year (see Chapter 17).

(3) The amount of income tax to be collected (“the collectable amount”) is the amount equal to the sum of the deemed deductions from the deemed payments.

(4) But if the sum of the gross amounts of the deemed payments exceeds the trustees' modified net income for the tax year (see section 1025), the collectable amount is the amount calculated by taking the steps in subsection (5).

(5) The steps to be taken are as follows.

• Step 1

  Take the amount equal to the sum of the gross amounts of the deemed payments and reduce that amount by—

  (a)

  the amount of the trustees' income pool as at the start of the tax year (see section 943), or

  (b)

  if less, the amount by which the sum of the gross amounts of the deemed payments exceeds the trustees' modified net income.

• Step 2

  Apply the basic rate for the tax year to the result from Step 1.

943 Calculation of trustees' income pool

(1) This is how the amount of the trustees' income pool as at the start of a tax year (“the current tax year”) is calculated.

The calculation to be used depends on which of the following cases applies.

But this needs to be read with subsections (2) and (3).

• Case 1

  This case applies if the trustees' modified net income for the previous tax year exceeded the sum of the gross amounts of the deemed payments treated as made by the trustees in that year.

  The trustees' income pool as at the start of the current tax year is the sum of—

  (a)

  the amount of the trustees' income pool as at the start of the previous tax year, and

  (b)

  the amount by which the trustees' modified net income for the previous tax year exceeded the sum of the gross amounts of the deemed payments treated as made by the trustees in that year.

• Case 2

  This case applies if the trustees' modified net income for the previous tax year was less than the sum of the gross amounts of the deemed payments treated as made by the trustees in that year.

  The trustees' income pool as at the start of the current tax year is—

  (a)

  the amount of the trustees' income pool as at the start of the previous tax year, less

  (b)

  the amount of the reduction made at Step 1 in section 942(5) for the purpose of calculating the collectable amount for the previous tax year.

• Case 3

  This case applies if the trustees' modified net income for the previous tax year equalled the sum of the gross amounts of the deemed payments treated as made by the trustees in that year.

  The trustees' income pool as at the start of the current tax year is the same as the amount of the trustees' income pool as at the start of the previous tax year.

(2) If the trustees were non-UK resident for the previous tax year, references in subsection (1) to the previous tax year are to be read as references to the last tax year prior to the current tax year for which the trustees were UK resident.

(3) The income pool as at the start of the current tax year is nil if—

(a) the current tax year is the tax year during which the unauthorised unit trust is established, or

(b) the trustees have been UK resident for no tax year prior to the current tax year.