Capital or income?

Trusts Discussion
1

Back in the day when I first started working in trusts for one of the big High Street banks, I was taught that interest on late paid IHT (or instalments if paying that way) was accounted for on the Income Account.

To cut a very long story short and thirty years later, the question of whether interest paid on IHT is capital or income has arisen and not everyone agrees with me.

What do you guys think?

This isn’t a question about whether it’s a TME or not, as I know it isn’t; it’s an accounting question.

My logic tells me that the income beneficiaries have had the benefit of the income from the cash during the period of late payment and so it’s entirely reasonable that they should bear the interest.

2

Interest on IHT must be an ‘income’ payment rather than a ‘capital’ payment.

The payment does not bring any asset into existence nor does it eliminate any liability.

There are situations in which interest can be capitalised but I very much doubt this is one of them.

3

Thank you. Your view confirms that I haven’t been doing it wrong for 30+ years! Unless we are both
wrong, of course…

4

I agree with Gerry, interest on IHT comes out of income generated in the estate.

Patrick Moroney

5

I agree with Gerry

Interest is seen as the “fruit of the tree” where the “tree” is an investment, so why should interest on a liability be any different – it is merely the mirror image of interest on an asset.

Paul Saunders FCIB TEP

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