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