Deceased persons: limited interests in residue - statutory - conventional basis of taxation
The statutory basis
The statutory basis is provided in ITTOIA/Ss654, 656 and 661 for non-corporate beneficiaries, and in CTA 2009/Ss939, 941 and 944 for corporate beneficiaries. This requires all sums paid during or payable on completion of the administration period to be taxed over the course of the administration period. The amounts are allocated to tax years as follows:-
* the interest has not ceased before the beginning of the tax year * the administration period continues after the end of the tax year
* the amount is the sum paid in the tax year
* the interest has not ceased before the beginning of the tax year * the administration period ends in the tax year
* the amount is the total of any sum paid in the tax year before the end of the administration period plus any amount still due to the beneficiary at the end of the administration period
* the interest ceases in the tax year * the administration period continues after the end of the tax year
* the amount is the total of any sum paid in the tax year plus any amount still due when the interest ceases
The amounts allocated to each year are then deemed to be the net income of the beneficiary for that year. The amount concerned is grossed at the applicable rate.
Different rules applied for periods before 6 April 1995 and advice on any cases to which this applies should be referred to HMRC Administration of Estates Cardiff.
The conventional basis
The beneficiary is treated as if he had been entitled to the income of the estate (or an appropriate part of the estate) as and when the income arose to the personal representatives. The basis applies for all purposes including repayments.
It is unlikely that there will be cases where it is worthwhile insisting on the statutory basis. If the beneficiary asks for the statutory basis to be applied, they should supply HMRC with a computation on that basis. If there are any problems with such a computation, advice should be requested from HMRC Administration of Estates Cardiff.