Income Tax (Trading and Other Income) Act 2005 section 668

Reduction in share of residuary income of estate

Section 668 provides for the reduction of a beneficiary's share of residuary estate income where the income allocated to them over the administration period exceeds what they actually receive.

• Where a person with an absolute interest in estate residue has been allocated more residuary income across all tax years than the total amounts actually paid or payable to them (grossed up for UK estates), a reduction applies
• The excess is deducted from the beneficiary's share of residuary income in the final tax year of administration, and if that is insufficient, from the previous year's share, working backwards until the excess is fully absorbed
• For UK estates, amounts paid or payable are grossed up at the income tax rate borne by the estate income from which those amounts are treated as paid — using a single rate if uniform, or multiple rates applied to corresponding portions if the income bore different rates
• Where the reduction requires adjustments to earlier tax years, all necessary amendments and repayments of income tax must be made