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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: limited interests in residue - taxation of beneficiary - examples of statutory basis

Example 1: Husband dies on 30 September 2009 leaving an interest in possession in various savings accounts to his wife. Interest income of £5,000 arose in 2009/10 and £8,000 in 2010/11 during the administration period, which ended on 31 October 2010. Payments of £3,000 and £6,000 were made on 31 January 2010 and 31 July 2010 respectively.

  09/10 10/11
     
Interest 5,000 8,000
Net of tax @ 20% 4,000 6,400
     
Paid 3,000 6,000
Payable   1,400
Total basic amount 3,000 7,400
Grossed up 3,750 9,250
  Note 1 Note 2
  1. The basic amount of estate income for 2009/10 is the amount of £3,000 paid in the year. As the limited interest has not come to an end and it is not the last year of the administration period, there are no other amounts to consider.
  2. For 2010/2011, the basic amount of estate income includes the payment of £6,000 made in the year and the amount of £1,400 that is still due to the widow at the end of the administration period.

Example 2: Person A dies on 5 April 2008 and, in her will, leaves an interest in possession for 2 years to a beneficiary B. B’s limited interest for the period to 5 April 2010 is in the rental income of £10,000 p.a. from a let property. Payments of £5,000, £7,000 and £3,000 are made to B on 31 March 2009, 31 March 2009, 31 January 2010 and 30 April 2010 respectively. The administration period ended on 5 April 2011.

Tax position

  08/09 09/10 10/11
       
Rents 10,000 10,000  
Net of tax @ 20% 8,000 8,000  
       
Paid 5,000 7,000 3,000
Payable 5,000 4,000  
( 3,000 + 1,000)        
  Total basic amount 5,000 11,000  
  Grossed up 6,250 13,750  
    Note 1 Note 2 Note 3
  1. The basic amount of estate income for 2008/09 is the amount of £5,000 paid in the year. As the limited interest has not come to an end and it is not the last year of the administration period, there are no other amounts to consider.
  2. For 2009/10, as the limited interest comes to an end on 5 April 2010, the basic amount of estate income includes three amounts, the payment of £7,000 made in the year, the amount of £3,000 that is paid in a later year and the amount of £1,000 that is still owed to B at the end of the administration period.
  3. 2010/2011 is the last year of the administration period. As the limited interest ceased before this tax year, all amounts both paid and payable have already been taxed so there is no further tax to pay.