Schedule 1: Consequential Amendments Part 1: Income and Corporation Taxes Act 1988 Paragraphs 284 and 285: sections 695 and 696 of ICTA
3461.This concerns the amendment of sections 695(4)(b) and 696(6) of ICTA so that they will apply for corporation tax purposes without references to the charge to income tax under Schedule D Case IV.
3462.Part 16 of ICTA deems certain payments made to beneficiaries from estates in administration to be income. Although Part 16 of ICTA principally applies to beneficiaries within the charge to income tax, it is also capable of applying to beneficiaries within the charge to corporation tax. Chapter 6 of Part 5 of this Act rewrites the provisions which apply for income tax purposes, and Schedule 1 amends Part 16 of ICTA so that it will only apply for corporation tax purposes.
3463.Section 695 (limited interests in residue) and section 696 (absolute interests in residue) of ICTA apply respectively to persons who have a limited interest in the residue of an estate at any time during the administration period or an absolute interest in the residue.
3464.Under sections 695(2) and 696(3) of ICTA payments made in respect of those interests are deemed to be paid to the persons with the interests as income for the tax year in question. Section 695(4) of ICTA makes different provision about the amount of the income deemed to have been paid and the way it is treated for tax purposes according to whether the estate is a United Kingdom estate or a foreign estate in the tax year in which the amount is deemed to have been paid. Similar provision is made by section 696(4) and (6) of ICTA for persons with absolute interests in estates. (The relevant parts of these sections are rewritten for income tax purposes in sections 649(1), 656 and 657.)
3465.In the case of UK estates, a free-standing non-Schedular charge is imposed because the provisions merely say that the amount is income, but do not specify a charging Schedule. In the case of foreign estates, sections 695(4)(b) and 696(6) of ICTA provide that the amount deemed to have been paid as income is to be “chargeable to income tax under Schedule D Case IV as if it were income arising from securities in a place out of the United Kingdom”. This operates successfully for persons liable to income tax. But there is no longer any charge under Schedule D Case IV for corporation tax purposes. Paragraph 5 of Schedule 14 to FA 1996 introduced a new Schedule D Case III for corporation tax purposes to replace the previous Cases III and IV (see section 18(3A) of ICTA). This income does not fall within the ambit of the new Schedule D Case III.
3466.So, since there are no Schedular charges imposed on this income from foreign estates for corporation tax purposes, the amendments of sections 695(4)(b) and 696(6) of ICTA in Schedule 1 omit the words referring to the charge under Schedule D Case IV. This leaves the income subject to non-Schedular charges in the same way as the income from United Kingdom estates.