Annex 1: Minor Changes in the Law Change 72: Miscellaneous income: beneficiaries’ income from estates in administration: amounts grossed up using basic rate: reduction in share of residuary income of estate: section 951
This change provides that the basic rate of income tax is used to gross up the sums paid before the completion of the administration of an estate (or sums payable on the completion of the administration of the estate) to a beneficiary with an absolute interest in the estate, for the purposes of determining whether the beneficiary has been charged to tax on more income than the beneficiary has enjoyed and adjusting the tax payable by it accordingly.
Section 697(2) of ICTA provides that where:
	the total of a beneficiary’s shares of the residuary income of an estate for all years in which the beneficiary held an absolute interest exceeds,
	the total sums paid or payable to that beneficiary during or at the end of the administration period (“benefits received”),
that excess is deducted from the beneficiary’s share of the residuary income of the estate in the year the administration is completed. Any excess which cannot be deducted in that year is deducted from the beneficiary’s share for the previous year and so on.
To determine the benefits received, section 697(3) of ICTA provides that the sums paid (or payable) are taken to be such amounts as would, after the deduction of income tax for the year of assessment in which they were paid, be equal to those sums. That is, they are grossed up.
When 697(3) of ICTA was rewritten for income tax purposes in section 668(5) of ITTOIA, as a result of section 4(1) of ICTA the amount of income tax was taken to have been deducted at the “basic rate”.
Section 4(1) of ICTA provided that any provision requiring, permitting or assuming the deduction of income tax from any amount, or treating income tax as having been deducted from or paid on any amount, should, subject to any provision to the contrary, be construed as referring to deduction or payment of income tax at the basic rate in force for the relevant year of assessment.
Section 4(1) of ICTA was repealed by ITA 2007 and was not rewritten as a general rule.
This change provides that the basic rate is to be used when amounts are grossed up for the purpose of this section. It brings the income tax and corporation tax codes back into line, and restores the law to the position before section 4(1) of ICTA was repealed.
Current practice is that the benefits received are grossed up at the basic rate and therefore this change will make no difference in practice.
Whether this change is advantageous or not depends on how section 697(3) of ICTA would be interpreted in the absence of section 4(1) of ICTA. The change is advantageous if a grossing up rate of more than the basic rate would be applied, and disadvantageous if a lower rate would be applied or no grossing up could be done.
This change is in principle adverse to some taxpayers and favourable to others. But it is expected to have no practical effect as it is in line with generally accepted practice.