I feel sure I’ve considered this before (years ago!) but can’t find whatever it was I found then.
My Firm is dealing with a large Estate with one residuary beneficiary; investment portfolio comprised the bulk of the £2M Estate, all dealt with quickly. The investments were all transferred to the beneficiary’s new investment account with the brokers once Probate obtained, in 2023/24, along with the substantial dividend income that had arisen since dod, in 2022/23. No interim payments on account of residue were made until 2023/24 tax year.
I am now looking at the R185 position. Per s.653 ITTOIA, beneficiaries have no legal or equitable interest in assets of the deceased’s estate during the administration period and consequently no entitlement to either assets or income so no charge to income tax arises on them in which case, it must be taxable wholly on the PR’s despite the funds never having passed through their hands - correct?
I think I’ve just typed myself into the answer but want to be absolutely sure because it will result in a higher tax bill for the beneficiary with the rolled up dividend income all falling into one tax year.
The PRs are liable to income tax on the estate’s income (effectively they are acting in a representative capacity). Basically, until residue is ascertained beneficiaries are not liable to income tax on the administration income; unless, for example, income is actually distributed to that beneficiary.
With respect to a residuary beneficiary with an absolute interest in residue an income tax charge arises in the tax year in which payment is made to the beneficiary [ITTOIA 2005 s 652]. As liability arises in the tax year of payment it may be unfavourable for the recipient beneficiary to receive a significant single large payment as opposed to spreading any payments.
Malcolm Finney