Commentary

E1.960 Tax—free annuities resulting in annuitants repaying or recovering tax from trustees

Personal and employment tax

E1.960 Tax—free annuities resulting in annuitants repaying or recovering tax from trustees

Tax-free annuities bequeathed in wills

E1.960 Tax—free annuities resulting in annuitants repaying or recovering tax from trustees

This article discusses annuities that have been bequeathed free of tax. The calculation of the amount payable and any associated refund of tax is discussed in E1.960A.

An annuity is an annual payment, which is assessable upon the recipient as a separate source of miscellaneous income (see E1.510)1.

The payment of an annuity involves the payment, usually out of income, to a beneficiary in instalments for perpetuity or for a finite time as stipulated by a testator or by trustees (see C4.505).

An annuity bequeathed in a will, is inevitably administered through a trust and is usually paid under obligation rather than by discretion. The annuity is in itself an obligation on the trustees to pay the amount stipulated. The trustees therefore have a duty to deduct tax at the prevailing basic rate and issue a tax deduction certificate to the recipient (see E1.801)2.

The rules discussed in this article are concerned with tax-free annuities that create a situation where the annuitant3:

  1.  

    •     must repay some or all of any refunded tax to the trust, or

  2.  

    •     can recover tax

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