Intestate husband died 1986. Statutory legacy of £40,000 not paid until 14 December 2011. Interest at 6% is due for the whole of that period but has still not been paid. Is it agreed this is paid from net income from date of death to 14.12.11, with the balance of income split half to widow and half to children? What if there was not enough income during the period to cover it-is the shortfall paid from capital, or is it deducted from income after 14.12.11 until it is covered?
Interest on legacies, including a statutory legacy, is paid gross out of the corpus of the estate, and taxable in the hands of the recipient.
It is not an allowable deduction for income tax purposes, either within the estate or in the hands of a beneficiary- another example of double taxation. Possibly an issue to be raised with HMRC in connection with the proposed 2018 review of the taxation of trusts?
So in the case of a life interest trust arising from the estate, the interest is paid from capital not income, and is not a deduction from the tax certificate when calculating the amount payable to and taxable in the hands of the income beneficiary?