Chapter 1: Corporate beneficiaries under trusts
Overview
1916.This Chapter contains rules that apply to the income of corporate beneficiaries of settlements. The first section concerns payments made at the discretion of the trustees. The second section concerns cases where the beneficiary is entitled to a share of the settlement income as it arises (often described as having an “interest in possession”).
Section 610: Discretionary payments by trustees to companies
1917.This section provides that discretionary payments by trustees to which sections 494 and 495 of ITA apply are ignored in calculating the beneficiary’s liability to corporation tax. It is based on section 687A of ICTA.
1918.Under subsection (2), this provision does not apply to payments made to charitable and similar bodies. These bodies have their own rules (see Part 11).
1919.The word “profits” in section 687A of ICTA does not have a defined meaning: the interpretation in section 6(4)(a) of ICTA does not apply to this section. Subsections (3) and (4) of this section refer to the “income” of the company for corporation tax purposes instead as this fits with the charge to corporation tax on income (see for example section 4(3) of this Act) and with Chapter 7 of Part 9 of ITA (discretionary payments).
1920.Under subsection (3)(b), the payments are income for corporation tax purposes under section 493 of ITA but are ignored for the purpose of determining the income that is chargeable to corporation tax.
1921.The beneficiary is treated under section 494 of ITA as having paid income tax on the grossed-up amount of the discretionary payment and the trustees are liable for that tax under section 496 of ITA. But subsection (3)(a) provides that the tax is not available for set-off against corporation tax or any other income tax for which the beneficiary has to account and subsection (3)(c) provides that the deemed income tax is not repaid to the company.
Section 611: Income tax provisions to apply in relation to trustees’ expenses
1922.This section applies the rules in sections 500 and 503 of ITA. It is based on section 698B of ICTA. These provisions are concerned with the treatment of trustees’ expenses in a case where the beneficiary is entitled to trust income as it arises. This is where the beneficiary has an interest in possession (IIP).
1923.It is very rare for a company to be an IIP beneficiary of a trust so this is a case where it seems preferable to have this section read across to, rather than duplicate, the income tax provisions.
1924.Much of the content of sections 500 and 503 ITA was new as there was very little statutory guidance about how trustees’ expenses affect the measure of a beneficiary’s income. The principles were mainly derived from trust and tax law, but are well understood and are the subject of guidance issued by HMRC. See Change 45in Annex 1.
