The following Trusts and Inheritance Tax guidance note by Tolley in association with Peter Gausden, Consultant Solicitor at Rowlinsons provides comprehensive and up to date tax information covering:
Beneficiaries are chargeable to income tax only on distributions treated as income and are assessed only in the tax year of actual receipt. Old rules providing that on completion of the administration, income payments had to be evened out across the administration period, no longer apply. Consequently, personal representatives can control the timing of income payments which may be important if beneficiaries have an uneven source of income. They may wish to receive income in tax years when their other income is low and so personal representatives need to liaise with beneficiaries or their tax advisers.
A beneficiary is charged on relevant estate income applicable to his interest which is entered on the beneficiary’s tax return having been grossed up at the rate at which the personal representatives paid Income Tax. The beneficiary is credited with the tax paid and personal representatives should provide a tax deduction certificate ( R185 (Estate Income) ).
Most rules are in ITTOIA 2005, Part 5, Chapter 6 and differ according to the type of interest a beneficiary has in the estate and also whether or not it is classified as UK estate or foreign estate (see below).
As regards special rules for annuities, see ITTOIA 2005, ss 683–686.
Specific beneficiaries, unlike residuary legatees, are entitled to income arising from the date of death. So, if an asset produces income, it belongs to them.
If there is delay in paying it, the income is taxed as estate income in the hands of the personal representatives. Eventually, the beneficiary will include the grossed up income when received in his own return and has credit for the tax paid by the personal representatives as shown in the tax deduction certificate (R185 (Estate Income) ).
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