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HMRC internal manual

Trusts, Settlements and Estates Manual

Deceased persons: interests in residue: practical and computational aspects - underlying source of income

The amount that is deemed to be the income of the beneficiary under the rules for absolute, limited and discretionary interests in residue is one single source of income. In the hands of the personal representatives it might have consisted of several different sources. But this does not generally carry through to the deemed income of the beneficiary.

The tax rules for 1993-94 onwards, under which the income may be deemed to carry tax at either the basic rate or the savings rate, (for years where this rate applies), did not change this situation. The deemed income remains one source and we do not `look through’ that source to the underlying income.

There are two exceptions to this general rule.

First exception

If the beneficiary is not resident or not ordinarily resident in the United Kingdom he may claim the benefit of Extra Statutory Concession A14.

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Second exception

There are types of income which, when received by an individual, are deemed to be income only for the purposes of higher rate tax. Where personal representatives receive income of this type, it is included in the computation of residuary income. But any basic or savings rate (for years where this rate applies) tax treated as having been paid is not available for repayment. This rule applies to the following types of income

  • close companies-loans to participators (ITTOIA/S419)
  • gains from insurance policies etc (ITTOIA/S464(1))
  • stock dividends (ITTOIA/Ss410(1), (4), (5), and 413(4)).