Income Tax (Trading and Other Income) Act 2005 section 650

Absolute, limited and discretionary interests

Section 650 defines the three types of interest — absolute, limited and discretionary — that a person can have in the whole or part of the residue of a deceased person's estate, and explains how "properly payable" is to be understood in this context.

• An absolute interest arises where the capital of the residue (or part of it) is properly payable to the person, or would be if the residue had been ascertained; a limited interest arises where the person does not have an absolute interest but would be entitled to the income if the residue had been ascertained at the start of the relevant period.
• A discretionary interest exists where a discretion may be exercised in the person's favour and, if exercised, income from the residue during all or part of the administration period would be properly payable to them — effectively assuming there will be sufficient income once the residue is ascertained.
• An amount is only treated as properly payable to a person if it is payable to them, or to another acting in their right, for the person's benefit — so, for example, a bankrupt beneficiary's entitlement passing to a trustee in bankruptcy does not count, because the trustee receives it in a fiduciary capacity rather than for the beneficiary's benefit.
• Where the personal representatives of one deceased person hold a right in the estate of another deceased person, they are treated as having an absolute or limited interest in that other estate if they would have had such an interest were the right vested in them for their own benefit.