Statement of Practice 4 (1993)
Published 16 March 1993
© Crown copyright 1993
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ITTOIA 2005 ss 650(3), (4), (6), 655(1), 662 provide for discretionary payments out of the income of the residue of an estate of a deceased person, whether made directly by the personal representatives, or indirectly through a trustee or other person, to be treated as the income of the recipient for the year in which they are paid.
HM Revenue and Customs (HMRC) will apply ITTOIA 2005 ss 650(3), (4), (6), 655(1), 662 whenever such discretionary payments are made, whether they are payments out of income of the residue as it arises or out of income arising to the personal representatives in earlier years, which has been retained pending the exercise of their discretion.
Where payments are made out of income of the residue of UK estates (as defined in ITTOIA 2005 ss 651(1) to (3)) they are treated for 1993 to 1994 and later years as received after deduction of tax at the applicable rate (as defined in ITTOIA 2005 ss 663, 679(2), (3)).
Recipients who are not liable to Income Tax on the payments, including charities, are entitled to claim repayment of this tax except where the basic amount is paid from sums within ITTOIA 2005 s 680.
Where payments are made indirectly through trustees, the trustees may be liable to tax at the rate applicable to trusts on the payments under TA 1988 s 686. Beneficiaries may be treated as receiving the payments after deduction of tax at the rate applicable to trusts. This tax may be repaid or further tax charged, depending on the beneficiary’s marginal rate. The trustees are not chargeable to Income Tax at the rate applicable to trusts, where a trust is established for charitable purposes only.
With effect from 16 March 1993 HMRC will apply ITTOIA 2005 ss 650(3), (4), (6), 655(1), 662 in this way to all open cases whether this results in repayment of tax or an assessment to Income Tax at the higher rate. Claims for repayment of tax may also be made for years from 1986 to 1987 onwards, including supplementary claims where an earlier claim was refused under previous practice.
For all payments made before 6 April 2005, the relevant provisions of TA 1988 Part XVI apply, and after 6 April 2005, where a company is the beneficiary of a deceased estate, the provisions of Part XVI continue to apply for discretionary payments to the company out of the income of the residue.
Note: the text of this statement was revised in August 2005.