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HMRC internal manual

Inheritance Tax Manual

From
HM Revenue & Customs
Updated
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Accrued and apportioned income: apportioned income

Accrued income (IHTM16171) is to be contrasted with apportioned income, where shares are held but no dividend had been declared in (say) the six months prior to the death. When income is apportioned the benefit of any prospective dividend is inherent in the shares as they stand at the date of death.

The Apportionment Act 1870 provides that all rents, annuities, dividends etc are considered to accrue from day to day and are apportionable. The taxable amount of a death estate should include all the income of the property comprised in it up to the date of death.

However, settlements quite commonly provide that there shall be no apportionment [mainly because apportionment is considered to be more trouble than it is worth] and if that is what the settlement provides, this prevails.

Example

A particular company habitually declares a dividend once a year on 31 December. Some of its shares are held in a settlement and the life tenant dies on 31 October 2001.

So, unless the settlement says otherwise, the part of the dividend relating to the period from 1 January 2001 to 31 October 2001 has to be calculated, and this part is apportioned to the life tenant. The balance of the dividend [61 days income] goes to whoever is entitled following the life tenant’s death.

As an aid to memory it may be said that accrued income is external and disclosed; apportioned income is internal and must be calculated. In either case the income concerned should be deducted from the taxable settled property and included in the free estate.

If the figures do not match, and a worthwhile amount is involved, you should ask the parties to reconcile the figures (usually it is because the executors/trustees/agents are different).