Income Tax Act 2007 section 497

Discretionary payments: trustees' tax pool

Section 497 (as modified by Schedule 2, paragraph 104) provides transitional rules for calculating the trustees' tax pool when a discretionary trust was established before the 2007-08 tax year, ensuring that credits accumulated under the old ICTA rules carry forward properly into the new regime.

• The transitional rules apply to settlements established before 2007-08 where the current tax year is 2007-08, or where the trustees have not been UK resident since before 2007-08
• The starting point for the tax pool under the new rules is the trustees' final tax pool balance under the old section 687(3) of ICTA, carried forward from 2006-07
• Any tax treated as paid on discretionary payments made during 2006-07 must be deducted from that opening balance, but the result cannot fall below nil
• The normal rules in section 497 for building up the tax pool from earlier years (subsections (2) and (3)) are switched off, because the old ICTA pool figure already captures the historical position

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