Income Tax Liability on Rental Property In Probate

(Gary Taylor) #1

The deceased owned a property which he rented out. He left a Will leaving his residuary estate to his wife. The rental property formed part of the residuary estate. The rental property has now been Assented to his wife. The query is with regards to the income tax liability on the rental income from the date of death up to the date when the rental property was transferred to the surviving wife.

Is the rental income received from the date of death up to when the rental property was transferred to the wife deemed to be the wife’s personal income and therefore to be declared on her personal tax return or does the executor need to include the rental income as part of the estate income?

Gary Taylor
Progressive Wills Ltd

(Lucy Orrow) #2

Dear Gary,

Where income is derived from a specific legacy, then it is payable to the beneficiary, when the asset is assented.
Where the income arises on the residuary estate, it should be reported by the Estate until such time as the residue is assented.

Lucy Orrow
Lambert Chapman LLP

(Malcolm Finney) #3

Income tax on income arising during the administration period is the liability of the PRs (20% re rental income).

Where a residuary beneficiary has an absolute interest (ie entitlement to capital and income) in residue any payments of the rent to such beneficiary by the PRs are subject to income tax on the part of the recipient beneficiary for the tax year of payment (with an offsetting credit for income tax paid on such payments by the PRs). Any rents not paid over to the beneficiary by the end of the administration period are deemed to have been paid to the beneficiary immediately before the end of this period.

On assent of the property to the beneficiary any income arising thereafter is the liability of the recipient beneficiary not the PRs.

Malcolm Finney

(Gary Taylor) #4

Thank you both Lucy and Malcolm.

So if I understand the position set out in the scenario given (the residuary beneficiary does have an absolute interest and has received the rent following the death of the Testator up to when the property was Assented to her) the PRs must pay the tax on the rental income up to the date when the property was Assented. If the residuary beneficiary is a higher rate tax payer then they pay any additional income tax due.

Is that correct?

Gary Taylor
Progressive Wills Ltd

(Malcolm Finney) #5

Correct. Note rental income is chargeable on a rents receivable.

Malcolm Finney

(duncan.mcgowan) #6

Further to Malcolm’s response, since 6 April 2017 “those with income from a property business (landlords) will be able to use the cash basis rather than generally accepted accounting practice (GAAP) to calculate their taxable profits”

https://www.gov.uk/government/publications/calculation-of-profits-of-property-businesses/income-tax-simplified-cash-basis-for-unincorporated-property-businesses

Duncan McGowan
Stevens & Bolton