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HMRC internal manual

Trusts, Settlements and Estates Manual

Deceased persons: limited interests in residue - payments made during the administration period

As a life interest can be an important source of income for a beneficiary, payments are often made during the administration period. The limited interest (see TSEM7652 for definition) beneficiary is treated as having income equal to the gross equivalent of the amount paid in the year of assessment. When the administration is completed, the beneficiary is treated as having received the balance of income to which he was entitled.

As with absolute interests, the beneficiary should be supplied with a statement, which may be on form R185 (Estate Income). This shows income bearing tax at the basic and savings rates (for years where this rate applies). It may possibly include non- payable or non-repayable tax. You should normally accept this statement. If you wish to make an enquiry involving this source of income, consult HMRC Administration of Estates Cardiff before doing so.

For years up to and including 1992-93 the amount paid to the beneficiary is grossed at the basic rate. From 1993-94 the amount paid is treated as paid from the following sources

  • firstly out of income bearing basic rate tax
  • secondly out of income bearing savings rate tax (for years where this rate applies)
  • finally out of income bearing non-payable dividend rate tax

It is grossed at whatever rate is applicable.

Over the course of the administration period, all amounts either paid or payable to the beneficiary will be taxed. You can use either the statutory or the conventional basis.