The first thing to do is ascertain the interest/dividend income that belongs to the deceased (and not that of the estate) for income tax purposes and that which is estate income for income tax purposes. Note, the timing of the income tax liability of interim versus final dividend payments is different. Interest is subject to income tax when received.
Such income as appropriate is then included gross as part of the deceased’s income pre death and income tax is then levied at the deceased’s marginal rates. The unpaid income tax charge thereon is a liability of the estate and thus a deduction for IHT purposes.
The income charged as estate income is taxed at PR rates.
The income does not suffer income tax twice.
However, if income is taxed as part of the deceased’s estate but relates in part to the period pre death and an apportionment for succession purposes is made then there is an element of double tax ie because some of the post death income is subject to income tax but at the same time a proportion of it is subject to IHT as part of the estate. In such circumstances ITTOIA 2005 s669 provides an element of relief from double tax in the case of a residuary beneficiary absolutely entitled.