Deceased persons: absolute interests in residue - liability during the administration period (1995-96 onwards)
For 1995-96 onwards rules introduced in Finance Act 1995 apply. The main features of these rules on payments made during the administration period are as follows.
A beneficiary is treated as having received income from an estate only if a payment is made to the beneficiary in the year of assessment concerned. If no payment is made to a beneficiary in the year of assessment, the residuary income is carried forward to the next year.
A beneficiary who receives a payment from the estate is treated as having received as income for that year the lesser of
- the amount actually paid to the beneficiary from the estate in that year, or
- the amount of available income from the date of death until the end of the tax year in which the payment is made, less any amounts which have already been treated as the beneficiary’s income for earlier years.
The payment is treated as having been made from the following sources in this order
- first out of income which has borne basic rate tax
- then out of income which has borne savings rate tax (for years where this rate applies)
- finally out of income which has borne non-payable dividend rate tax.
Any residuary income that is not treated as the beneficiary’s income is carried forward to the next year.
See TSEM7606 for the rules for estates whose administration was completed on or before 5 April 1995. If there is any doubt about which rules apply ask when the administration was completed.
The beneficiary is treated as having received, in the year of assessment in which the administration was completed, the balance of his share of residuary income. This is his total share of residuary income from the commencement to the completion of the administration that has not been treated as the income of earlier years.
The process described above can involve complex calculations. You will not normally be involved in this process. If you are asked for advice on this subject, refer the request to Trusts & Estates Edinburgh. You can give agents and customers the Trusts & Estates Edinburgh address and Deceased Estates Helpline number 0845 604 6455). If you need advice, submit the case to Trusts & Estates Edinburgh or contact the Helpline.
Confirming the amount of income
The personal representatives may supply the beneficiary with a form R185 (Estate Income). This is a statement showing the amounts treated as income and the amounts of tax (and rates) deemed to have been paid on that income.
If exceptionally you intend to open an enquiry involving this source of income consult Trusts & Estates Edinburgh. If the estate concerned was valued at over £2.5 million they may have information about the underlying income.
Where the statement on form R185 (Estate Income) shows income bearing non-payable or non-repayable tax, do not, in any circumstances, repay that tax. However you should allow it as a credit against higher rate tax liability.