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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: interests in residue: practical and computational aspects - tax rules for United Kingdom estates

Where the estate is a United Kingdom estate, the sums that are deemed to be income (see TSEM7602 onwards) will always be taxed income. Different rules apply for years up to and including 1992-93 and for 1993-94 and later years.

Years up to and including 1992-93

Where the beneficiary had an absolute interest in residue (TSEM7602) the gross residuary income is deemed to have borne tax at the basic rate.

Where the beneficiary had a limited or discretionary interest in residue (TSEM7660) the amount paid is net income that has to be grossed up at the basic rate to arrive at the gross income. That sum is then deemed to have borne tax at the basic rate.

Years from 1993-94

For 1993-94 onwards the amount which is deemed to be the income of the beneficiary is deemed to have borne tax at the applicable rate. This may be either the basic rate, savings rate (for years where this rate applies) or the dividend rate, depending on the underlying sources of income. Some of the tax at these rates may be non-payable or non-repayable. In arriving at the amount attributable to income that has borne basic rate tax, expenses which are allowable in computing residuary income (TSEM7678) are set off primarily against basic rate income.

Where the measure of the beneficiary’s income during the administration period depends upon the amount paid, it is assumed that payments are made

  • 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.

Part of the sum deemed to be the income of the beneficiary may be deemed to have borne tax at the basic rate, so that part of the income is to be treated as if it were savings income. Basic rate taxpayers will have no further liability. But the payments will be treated, along with any dividends that they receive, as the top slice of their income.