Income Tax (Trading and Other Income) Act 2005 section 669

Reduction in residuary income: inheritance tax on accrued income

Section 669 provides relief where income that accrued before a person's death is subject to both inheritance tax (as part of the deceased's estate value) and income tax (as part of the estate's residuary income), by allowing a reduction in residuary income to prevent a double tax charge on higher and additional rate taxpayers.

• Where pre-death income is included in both the inheritance tax estate valuation and the estate's residuary income, a reduction is given to prevent double taxation
• The relief only affects the "extra liability" — the additional income tax that arises because the beneficiary pays tax at rates above the basic rate (including higher, additional, Scottish higher, and Welsh higher rates)
• The reduction is calculated by a three-step process: first determine net pre-death income, then calculate the proportion of inheritance tax attributable to that income, then gross up that inheritance tax at the basic rate
• The estate value and inheritance tax figures used in the calculation are those agreed with HMRC or determined in proceedings, and once settled they cannot be reopened