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HMRC internal manual

Inheritance Tax Manual

Estate Duty surviving spouse exemption: treatment of income

Following the Coutts case see IHTM04456, if the trust capital is exempt on the death of the surviving spouse, the following interests in income to which the estate of the deceased life tenant was entitled are treated as interests in the settled property and therefore as exempt

  • any apportionment of income to the date of death. The exemption is treated as extending to apportioned income such as dividends or interest on investments whether quoted ‘cum div’ or ‘ex div’; to similar apportionments of interest on loans and mortgages, and of other forms of income payable periodically (such as interest on deposits in Building Societies)
  • any dividend or interest payable after the death in respect of a period wholly within the deceased’s lifetime.

The exemption does not apply to any accrued income unpaid at the death that had previously become due for payment. Nor does it apply to any income already paid, which the deceased had not in fact received in their lifetime.

Where accumulations of income from settled property are, with the settled property itself, potentially taxable, any exemption on the death of the surviving spouse is extended to the accumulations also, unless the deceased had been competent to dispose (IHTM04457) of them.