669Reduction in residuary income: inheritance tax on accrued incomeU.K.
(1)This section applies if on the death of a person (“D”) income which accrued before D's death (“pre-death income”) is taken into account both—
(a)in determining the value of D's estate for the purposes of inheritance tax charged on D's death, and
(b)in calculating the residuary income of D's estate for a tax year.
(2)A reduction is made in the residuary income of D's estate for that tax year in ascertaining the extra liability, if any, of a person with an absolute interest in the whole or part of the residue of D's estate or any other estate to which that residuary income is relevant.
(3)A person's extra liability is the amount by which the person's liability to income tax exceeds the amount it would be if—
(a)income charged at the higher rate were charged—
(i)in the case of income within section 1A(1A)(c) of ICTA (income chargeable at the lower rate instead of the starting rate or the basic rate), at the lower rate, and
(ii)in any other case, at the basic rate, and
(b)income charged at the dividend upper rate were charged at the dividend ordinary rate.
(4)The amount of the reduction under subsection (2) is calculated as follows:
Step 1
Calculate the net pre-death income by subtracting from the pre-death income any liabilities which have been taken account both—
(a) in determining the value of D's estate for the purposes of inheritance tax, and
(b) in calculating the residuary income of D's estate for the tax year.
Step 2
Calculate the inheritance tax attributable to net pre-death income by multiplying the inheritance tax to be charged by—
where—
NPDI is the net pre-death income, and
VE is the value of D's estate.
Step 3
Gross up the inheritance tax attributable to net pre-death income by reference to the basic rate for the tax year.
(5)The amount of pre-death income taken into account in determining the value of D's estate is taken to be the actual amount of income accruing before D's death, less income tax at the basic rate for the tax year in which D died.
(6)Subsection (5) applies even if the income so accruing was not valued separately or its amount was not known at the date of D's death.
(7)For the purposes of this section, the amounts agreed between the persons liable for inheritance tax and the Inland Revenue, or determined in proceedings between them, as the value of the estate and the amount of inheritance tax to be charged are conclusive.
(8)Evidence of those amounts and of any facts relevant to their calculation may be given by the production of a document that appears to be a certificate from the Inland Revenue.