Income Tax (Trading and Other Income) Act 2005 section 636

Calculation of undistributed income

Section 636 explains how to work out how much of a settlement's income in a tax year counts as undistributed for the purposes of the settlor income rules.

• Unprotected income arising under a settlement is treated as undistributed to the extent it exceeds the total of income distributions made, allowable trustee expenses, and (for charitable trusts) a further amount calculated by formula.
• Income distributions include sums paid by trustees that are treated as the recipients' income for tax purposes, or would be so treated if the recipients were UK resident and the payments were made in the UK.
• Allowable trustee expenses are those paid in the year that would properly be chargeable to income in the absence of any express provision in the settlement, but excluding any expenses already counted as distributions.
• For charitable trusts, a further deduction is available equal to the amount by which tax-exempt income (A) exceeds the distributions and expenses properly chargeable to that income (B), but only where A is greater than B.