Finance (No. 2) Act 2023

Low income estates: tax liability of beneficiaries

11 (1) Chapter 6 of Part 5 of ITTOIA 2005 (beneficiaries’ income from estates in administration) is amended as follows.

(2) In section 649 (charge to tax on estate income), after subsection (1) insert—

“(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).”

(3) In section 656 (income charged: UK estates), in subsection (1), for “tax is charged under section 649” substitute “the charge to tax under section 649 is a charge”.

(4) In section 657 (income charged: foreign estates), in subsection (1), for “tax is charged under section 649” substitute “the charge to tax under section 649 is a charge”.

(5) In section 679 (income from which basic amounts are treated as paid)—

(a) in subsection (3) (as amended by paragraph 5(a)), at the end insert “(subject to subsection (3A))”;

(b) after that subsection insert—

“(3A) For the purposes of assumption B, where those parts include—

(a) income bearing income tax at 0% by virtue of section 680(1A), and

(b) other income bearing income tax at 0%,

payments are to be made from income within paragraph (a) after income within paragraph (b).”

(6) In section 679A (income from which sums within section 668(1)(b) are treated as paid) (inserted by paragraph 2(3))—

(a) in subsection (3), at the end insert “(subject to subsection (3A))”;

(b) after that subsection insert—

“(3A) For the purposes of assumption B, where that income includes—

(a) income bearing income tax at 0% by virtue of section 680(1A), and

(b) other income bearing income tax at 0%,

sums are to be paid from income within paragraph (a) after income within paragraph (b).”

(7) In section 680 (income treated as bearing income tax)—

(a) after subsection (1) insert—

“(1A) If, in the case of a UK estate, the aggregate income of the estate for a tax year is equal to or less than the de minimis estates amount (within the meaning of section 24B of ITA 2007), the aggregate income of the estate for that tax year is treated as bearing income tax at 0%.”;

(b) for subsection (2) substitute—

“(2) If—

(a) subsection (1A) does not apply to treat the aggregate income of the estate for a tax year as bearing income tax at 0%, and

(b) the aggregate income of the estate for that tax year includes a sum within subsection (2A) or (4),

the sum is treated as bearing income tax at the rate specified for it in that subsection.”;

(c) in subsection (5), after “sums within this section” insert “or from aggregate income treated as bearing income tax at 0% by virtue of subsection (1A)”.