Deceased persons: beneficiaries of estates - bank or building society interest taxed at source
Interest paid or credited before the date of death
Interest is taxable when it is paid or credited to an account. Interest credited to the deceased’s account before the date of death is treated as the income of the deceased. The personal representatives can claim tax back if the tax taken off that interest was more than the deceased was due to pay.
Interest paid or credited after the date of death
Interest credited to an account after the date of death is treated as the income of the deceased person’s estate. The personal representatives cannot normally claim any tax back that has been deducted from this interest. However, they may make payments to beneficiaries who are entitled to the income of the residue of the estate. These payments are treated as made after the deduction of tax at either basic rate or savings rate (for years where this rate applies) as appropriate.
The personal representatives should provide the beneficiaries with a statement, which may be on form R185 (Estate Income), showing the amount of estate income paid to each beneficiary and the amount of tax deemed to have been paid on that income.
A beneficiary of the residue of the estate, who has little or no tax liability, may be able to claim a repayment of tax deducted from the interest. The amount depends on their level of total income and allowances for the period.
Where there is more than one beneficiary entitled to the income of the residue of the estate, each one is treated as receiving only their share of the income. They may each be able to claim tax back on that share, depending on their particular circumstances.