I am currently helping with the administration of an estate. The deceased left 2 properties and the residue to charities, a cash legacy to A and a half share in a further commercial property to B (not free of IHT). B already held the other 50% of this property.
The properties for the charities have been transferred and sold on their behalf.
The commercial property generated significant rents and B requested that the IHT due be paid from the rental income received by the estate. The rental income received didn’t cover the full liability and B paid the deficit across to the solicitor client account.
Can anyone confirm whether the payment of the IHT, being a debt of the beneficiary, is considered a distribution of income and therefore would be shown on the R185 for the purposes of their personal income tax?
Once the property interest is appropriated, I believe the doctrine of relation back will apply, so that the rents received are treated as the income of the specific devisee as they arise so, in short, yes they should appear on the R185 for the tax year in which they were due and payable.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
Income arising from the specifically gifted property, post death, belongs to the beneficiary. However, the income tax charge on such beneficiary is on the rental income arising in each tax year (post death) ie the income tax liability does not arise in the tax year the PRs may pay out such income to the beneficiary.
As the PRs will have suffered income tax at the basic rate of income tax on such income (as estate income) this tax will be creditable against the beneficiary’s own liability.
R185 to be completed for each distribution to the beneficiary by the PRs.
Whether the beneficiary discharges any IHT due has no impact on the above.