Trusts and Inheritance Tax

Income tax during administration

Produced by Tolley
  • 03 Nov 2021 11:52

The following Trusts and Inheritance Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Income tax during administration
  • Liability of the personal representatives
  • Period of administration
  • Sources of estate income
  • Interest
  • Dividends
  • ISAs
  • Pensions
  • Property income
  • Trading income
  • More...

Income tax during administration

Liability of the personal representatives

After a person’s death, the property of the deceased is vested in the personal representatives (PRs) to enable them to manage and distribute the estate in accordance with the Will or the terms of intestacy. See the Personal representatives guidance note.

The PRs act as a single body and represent the estate as a separate legal entity. During the period of administration, income received by the personal representatives is assessed on the estate, and the PRs are responsible for paying the tax due.

Just like a UK resident individual, a UK resident estate is liable to income tax on its worldwide income (subject to double tax relief). A non-UK resident estate is liable to income tax on its income arising in the UK.

The residence status of an estate depends on the residence status of the PRs and the deceased:

  1. where all the PRs are UK resident, the estate is UK resident

  2. where all the PRs are non-UK resident, the estate is non-UK resident

  3. if the estate has both UK resident and non-resident PRs, it is UK resident if the deceased was UK resident or domiciled at the date of death

ITA 2007, s 834

Period of administration

The period of administration runs from the day after the date of death and ends when the estate is effectively wound up.

It may not be easy to determine the date of cessation of the administration. HMRC takes the view that it is the date when residue has been ascertained, but accepts that the administration may continue beyond that point. For practical purposes, it is a useful rule to apply. The residue is ascertained when all assets are collected, and debts and liabilities are agreed. The personal representatives may still hold assets or cash on behalf of the beneficiaries, but they hold them as bare trustees for those beneficiaries. In practice, HMRC will accept whatever date is decided upon by the PRs unless it is

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