Section 636 Calculation of undistributed income

United Kingdom

(1)

For the purposes of section 635, F1... income arising under a settlement in any tax year is treated as ... income which has not been distributed so far as it exceeds the total amount of—

(a)

the sums to which subsection (2) applies,

(b)

the expenses to which subsection (4) applies, and

(c)

if the trustees of the settlement are trustees for charitable purposes, the amount to which subsection (6) applies.

(2)

This subsection applies to F2... sums paid in the tax year to any persons by the trustees of the settlement F3that are payments of F4... income, or sums treated as representing ... income, and that—

(a)

are treated in that year (otherwise than under section 633) as the income of those persons for income tax purposes, or

(b)

would be F5treated as mentioned in paragraph (a) if those persons were F6...F7 resident in the United Kingdom and the sums had been paid to them there.

(3)

Subsection (2) is subject to section 637(1).

(4)

This subsection applies to any expenses of the trustees of the settlement paid in the tax year which, in the absence of any express provision of the settlement, would be properly chargeable to F8... income.

(5)

Subsection (4)—

(a)

does not apply to expenses so far as they are included in the sums mentioned in subsection (2), and

(b)

is subject to section 637(2) to (7).

(6)

This subsection applies to the amount by which—

A > B

where—

A is any F9... income arising under the settlement in the tax year in respect of which exemption from tax may be granted under F10any provision to which subsection (7) applies, and

B is the total amount of any such sums or expenses as are mentioned in subsections (2) and (4) paid in that year which are properly chargeable to the income.

F11(7)

This subsection applies to the following provisions of ITA 2007—

section 521(4) (gifts entitling donor to gift-aid relief),
section 522(5) (gifts of money from companies),
section 523(5) (payments from other charities),
F12section 523A (legacies)
section 524 (profits etc of charitable trades),
section 529 (profits from fund-raising events),
section 530 (profits from lotteries),
section 531 (property income etc),
section 532 (savings and investment income),
section 533 (public revenue dividends),
section 536 (miscellaneous income), and
section 537 (income from estates in administration).

Annotations

Textual amendments

F1: Word in s. 636(1) omitted (for the tax year 2025-26 and subsequent tax years) by virtue of Finance Act 2025 (c. 8), Sch. 12 paras. 9(a)(i), 70(1)
F2: Word in s. 636(2) omitted (with effect in accordance with Sch. 10 para. 21 of the amending Act) by virtue of Finance Act 2018 (c. 3), Sch. 10 para. 9(a)(i)
F3: Words in s. 636(2) substituted (with effect in accordance with Sch. 10 para. 21 of the amending Act) by Finance Act 2018 (c. 3), Sch. 10 para. 9(a)(ii)
F4: Word in s. 636(2) omitted (for the tax year 2025-26 and subsequent tax years) by virtue of Finance Act 2025 (c. 8), Sch. 12 paras. 9(a)(ii), 70(1)
F5: Words in s. 636(2)(b) substituted (with effect in accordance with Sch. 10 para. 21 of the amending Act) by Finance Act 2018 (c. 3), Sch. 10 para. 9(a)(iii)
F6: Words in s. 636(2)(b) omitted (for the tax year 2025-26 and subsequent tax years) by virtue of Finance Act 2025 (c. 8), Sch. 12 paras. 9(b), 70(1)
F7: Words in s. 636(2)(b) substituted (with effect in accordance with Sch. 46 para. 72 of the amending Act) by Finance Act 2013 (c. 29), Sch. 46 para. 48(1) (with Sch. 46 para. 48(2))
F8: Word in s. 636(4) omitted (for the tax year 2025-26 and subsequent tax years) by virtue of Finance Act 2025 (c. 8), Sch. 12 paras. 9(a)(iii), 70(1)
F9: Word in s. 636(6) omitted (for the tax year 2025-26 and subsequent tax years) by virtue of Finance Act 2025 (c. 8), Sch. 12 paras. 9(a)(iv), 70(1)
F10: Words in s. 636(6) substituted (with effect as stated in s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), ss. 1027, 1034, Sch. 1 para. 558(2) (with transitional provisions and savings in Sch. 2)
F11: S. 636(7) inserted (with effect as stated in s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), ss. 1027, 1034, Sch. 1 para. 558(3) (with transitional provisions and savings in Sch. 2)
F12: Words in s. 636(7) inserted (with effect in accordance with s. 54(10) of the amending Act) by Finance Act 2026 (c. 11), s. 54(5)(10)

Notes on Chapter 5

Textual amendments

F1: Words in Pt. 5 Ch. 5 heading inserted (with effect in accordance with Sch. 10 para. 21 of the amending Act) by Finance Act 2018 (c. 3), Sch. 10 para. 3(2)