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HMRC internal manual

Trusts, Settlements and Estates Manual

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HM Revenue & Customs
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Deceased persons: absolute interests in residue - payments made during the administration period (1994-95 or earlier)

The personal representatives may make a payment to a beneficiary during the administration period. This payment does not have specifically to be a payment of income. It can take the form of a capital payment or transfer of assets.

Where a payment during the administration period was made before 6 April 1995, the beneficiary was deemed to have received income for each year in the administration period in turn.

Example

The administration period started on 30 June 1992 and had not been completed by 5 April 1995. On 31 March 1995 a payment of £10,000 was made to a beneficiary. The beneficiary’s share of residuary income was as follows

Year Gross
£ Tax
£ Net
£        
         
  1992-93 5,000 1,250 3,750
  1993-94 6,000 1,500 4,500
  1994-95 8,000 2,000 6,000

The beneficiary is treated as having received

  • the net income of £3,750 for 1992-93
  • the net income of £4,500 for 1993-94
  • £1,750 of the net income for 1994-95.

The whole of the sum of £10,000 has been treated as income. The beneficiary is treated as having received gross income of

  • £5,000 for 1992-93
  • £6,000 for 1993-94
  • £2,333 for 1994-95.

It is unlikely that you will be involved in making these calculations. If you make enquiries that involve the attribution of income to years prior to 1995-96, check the basis of assessment with Trusts & Estates Edinburgh. Do this before you allocate, or challenge the allocation of, payments made before 6 April 1995.

In the above example the beneficiary was not deemed to have received the income until the payment was made on 31 March 1995. Tax returns made before then, which did not mention this source of income, were correct.

Liability on completion of the administration

If the administration of the estate is completed after 5 April 1995, any amounts that have been treated as income of the beneficiary for years up to and including 1994-95 will not be subject to later revision. A beneficiary who received nothing from the estate before 6 April 1995 will not be treated as having received income for years up to and including 1994-95.

Administration completed before 6 April 1995

Where the administration of the estate was completed on or before 5 April 1995 the `old’ ICTA88/Section 696(5) rules apply. Under those rules the beneficiary was treated as having the residuary income applicable to his share of the residue for each year during the administration period. Where payments made during the administration period have already been treated as income, see above, the amount treated as income was subject to revision. This might result in the amount treated as income for any particular year being increased or, more rarely, decreased.

If the amount treated as income for any year was increased, liability to tax at the higher rate was charged in a further assessment. Any existing assessment was not increased.

Special time limit

There is a special time limit allowing assessments and repayments to be made for any year. The assessment or claim must be made within three years of the end of the year of assessment in which the administration of the estate was completed.