I have to calculate the interest on a number of legacies which have been paid over a year after the date of death, However, they have been paid in 2 tranches, but both payments were after Executor’s Year. I’m just getting my head around how to work out the interest. So, for eg, a £50,000 legacy was paid as to £25,000 a year and a half after the date of death, and the final half was paid 2 a further 6 months later (so, 2 years after death). I note the rate change to 0.1% in June 2016.
I suspect it is a case of working out the interest on £50k over the full 1 year (ie, from a year after date of death) and then reducing it by the fact that they had £25k already, so deduct the interest earned on £25k?
Or do we not deduct the interest on the first payment and just pay the full interest for the 12months on the full £50k?
Part payment of a pecuniary legacy is first applied to any accrued interest entitlement.
Accordingly, you will need to calculate the interest to the date of the first payment, which will effectively reduce the capital element of the payment. If the £25,000 payment included, say,£50 of interest, the amount of the legacy still to be paid will be £25,050, plus interest accrued from the date of the first payment.
I believe interest is still paid gross (even if paid out of taxed income) and liable to tax in the hands of the legatee. It is only if the legatee is a non-UK taxpayer, that the interest is paid after tax (which the executor has to pay to HMRC)