Taxes Consolidation Act 1997 section 434

Distributions to be taken into account and meaning of "distributable income", "investment income", "estate income", etc

Section 434 defines key terms used in calculating the close company surcharge on undistributed estate and investment income, and sets out how a company's distributable income is computed for surcharge purposes.

• Estate income is income from the ownership of land or buildings (domestic or overseas) chargeable under Case III, IV or V of Schedule D; investment income is unearned income such as interest, dividends and other passive receipts that would not be earned income in the hands of an individual, but excludes income received as part of a trade and certain exempt distributions.
• A company's income for surcharge purposes is computed after deducting current-period losses and charges but before bringing in losses, expenses or charges carried forward or back from other periods.
• Estate and investment income and trading income are each calculated by formula, and the distributable amounts are net of the corporation tax that would be payable on each stream; for trading companies the distributable estate and investment income is further reduced by 7.5%.
• Where two close companies agree, a distribution from one to the other may be elected out of the surcharge regime; the election must be made in the paying company's corporation tax return and the payment is also excluded from the recipient's franked investment income.