Second death before Administration - Thoughts?

Good evening all,

I would be grateful for your thoughts on this unusual case.

H died in 2017 with a large estate. H’s Will left all assets to W and probate was granted quickly. No IHT payable. Due to a commercial dispute on a significant asset held by a company in the estate, no significant appointment of assets to W were made. All Income Taxes were paid by the PRs with only small interim distributions to W. There is therefore a large “pot” of undistributed income and of course, Income Tax has been suffered thereon.

W has recently died and we are preparing the Probate and IHT400. Everything goes to charity.

My query relates to the undistributed income in H’s estate.

Is it correct that the estate remains unadministered due to the serious dispute? HMRC in CG30710 seem to suggest that this is feasible. If yes, presumably the income in H’s estate remains undistributed. Does it then carry forward into W’s estate and thereafter into charity and therefore the charity receive the tax credit? Or is it somehow deemed to be appointed to W (perhaps just before her death) and therefore subject to Income Tax with a reclaim with R185.

I can’t make my mind up!

Thanks all.

To the extent that H’s estate remains unadministered any income rising remains undistributed. If in due course the outstanding dispute is resolved then any income arising during the admin period will attach to the appropriate gift under H’s will when vested in W’s estate. Thus, for example, the residuary gift will carry with it income which accrued following the death of H to the date of vesting in W’s estate. Any income tax credit due to tax paid on such income by H’s PRs will be offsettable on the part of W’s PR’s liability (not the charity).

I cannot see how any deeming prior to W’s death can occur.

Malcolm Finney

Many thanks Malcolm for your comments.