Annex 1: Minor changes in the law made by the Act: Change 106: Beneficiaries’ income from estates in administration: set off of excess of allowable estate deductions in the final tax year of the administration period: beneficiaries with absolute interests: section 660
This change provides for any amounts that are allowable against the aggregate income of the estate in calculating the residuary income of the estate in the tax year in which the administration period ends, but cannot be so allowed because they exceed that income, to be set off against the amount in respect of which the beneficiary with an absolute interest is taxable or, if there is more than such beneficiary, for a just and reasonable part to be set off.
Section 697(1A) of ICTA provides that where the deductions for any year exceed the aggregate income of the estate, the excess shall be carried forward and treated as an allowable deduction in the following year. Clearly, this is not possible in the tax year in which the administration period ends. In practice, however, excess deductions may be set off against any residuary income of the estate which has not been paid out. (This is often necessary since personal representatives may incur a high proportion of expense on the estate towards the end of the administration period, for example, because of the billing of legal or accountancy fees at the end.)
In rewriting section 697(1A) of ICTA, section 660(3) of this Act reflects that practice by providing for a person’s basic amount of estate income for that year (that is, the person’s share of the residuary income of the estate that has not yet been paid out) to be reduced by the excess deductions. If there is more than one absolute interest in the residue of the estate at the end of the administration period a just and reasonable part of the excess is subtracted.
This change is in taxpayers’ favour in principle. But it is expected to have no practical effect as it is in line with current practice.