Income Tax (Trading and Other Income) Act 2005 section 673

Successive interests: payments in respect of limited interests followed by absolute interests

Section 673 deals with how payments relating to an earlier limited interest are treated for tax purposes when that limited interest has been succeeded by an absolute interest in the residue of an estate during the administration period.

• Where interests in an estate's residue are held successively by different people, and a limited interest is followed by an absolute interest (the change being for a reason other than death), special rules apply to payments relating to the earlier limited interest
• If the absolute interest holder receives a payment relating to the earlier limited interest while they still hold the absolute interest, that payment is treated as paid in respect of the absolute interest — meaning it may form part of the basic amount of estate income in tax years before the final tax year
• If the absolute interest holder's own absolute interest has itself ceased (but the administration period continues), any outstanding payment relating to the earlier limited interest is instead treated as a payment under the limited interest rules, so the limited interest provisions govern how it is taxed
• However, for the specific purpose of calculating the reduction in the share of residuary income under section 668, such payments are always treated as paid or payable in respect of the absolute interest

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