Musician Royalties

Hi all, I am posting on behalf of a colleague who has become a little frustrated and is looking for some advice or hopes to be pointed in the direction of resources in dealing with a tax query.

Her client has requested HMRC confirm how inherited musician royalties will be treated for tax purposes. The answer they have provided suggests they will be treated as the beneficiary’s income and taxed accordingly.

However, there is concern that it could be an income to the estate but the estate is not generating the income and therefore HMRC will treat the royalties as capital, a capital accretion subject to ongoing IHT, which then leads to the question of how the monies are appointed out of the estate if we don’t know what they are due to get each year.

The Musicians Union (MU) advises that if a musician is deceased, the MU will continue to collect their share of any income due and will distribute it to their estate upon provision of appropriate probate documentation.

This appears to support the understanding of the treatment of the royalties for tax purposes. The MU has confirmed to the potential beneficiaries that their musician relative can prepare a letter setting out his wishes to be followed on his death in regard to the payment of his continued royalties.

She cannot find clarification on how the royalties will taxed on the death of the musician and if for example it might be better to set up a trust for the royalties.

Can any one help?

TIA

Emma Hatswell
Wason Male & Wagland

Hi there! I am also a musician! My understanding, having helped one client in this situation, PRS paid the royalties, upon receipt of Grant to the deceased’s wife and I’m almost certain they were then taxed as part of wife’s income as they were paid directly to her.

PRS direct might be able to help? Good Luck

Rachael Waring
Frodshams

Royalties are income produced by a copyright or some other right. They are by their nature income. Royalties received by a deceased estate are investment income because the estate does not carry on the trade that generated the copyright. The estate is indeed generating the income because the right that produces it is an asset of the estate.

Income of an estate is taxable on the estate in the first instance at the basic rate, but that is really just a payment on account as ultimately the income will belong to the beneficiaries of the estate and become taxable on them (with credit being given for the income tax paid at estate level).

Robert Maas
CBW Tax

Thank you Rachael, she will contact PRS.

Emma Hatswell
Wason Male & Wagland

Thank you Robert, I think the information you have given matches with the advice she gave in the first instance. She is very grateful for your assistance.

Emma Hatswell
Wason Male & Wagland