Trusts and Inheritance Tax

Income tax for beneficiaries of estates

Produced by Tolley
  • 23 Mar 2022 11:05

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

  • Income tax for beneficiaries of estates
  • Principles of taxing beneficiaries on estate income
  • UK estates and foreign estates
  • Accounting for income within the estate
  • Allocating income to beneficiaries
  • Beneficiaries with an absolute interest in residue
  • Relief for accrued income subject to inheritance tax

Income tax for beneficiaries of estates

During the period of administration, personal representatives (PRs) receive income arising from the deceased’s assets until they are sold or transferred to beneficiaries. They also receive income from bank accounts or other investments which they have set up to hold cash pending distribution of the estate. Income tax is paid at standard rates on these sources of income.

See the Income tax during administration guidance note.

This guidance note explains how the estate income is allocated to beneficiaries as taxable income so that the estate income is eventually taxed at the beneficiaries’ personal rates.

Principles of taxing beneficiaries on estate income

Beneficiaries’ entitlement to estate income, and consequently their liability to income tax, depends on the nature of their interest under the Will or intestacy. The most common type of interest which gives rise to an income tax liability for the beneficiary is an absolute interest in residue. This is described below. Other types of interest, which have their own particular features, are covered in the Beneficiaries’ estate income ― minor interests guidance note. These are:

  1. specific legatee

  2. pecuniary legatee

  3. limited interests in residue

  4. discretionary interests in residue

  5. successive interests in residue

However, some principles apply to all types of interest:

  1. income received by the estate retains its character when allocated to the beneficiary. So if the estate receives dividend income, for example, and pays it to a beneficiary, it will be taxed as dividend income in the beneficiary’s hands

  2. beneficiaries are primarily chargeable to income tax in the

Access this article and thousands of others like it
free for 7 days with a trial of TolleyGuidance.

There's no margin for error. Think Tax.
Think Tolley.

TolleyGuidance gives you direct access to critical, comprehensive and up-to-date tax information and expertise you can rely on.


Popular Articles

Isle of Man

IP COMPLETION DAY: 11pm (GMT) on 31 December 2020 marked the end of the Brexit transition / implementation period entered into following the UK’s withdrawal from the EU. At this point in time, key transitional arrangements came to an end and significant changes began to take effect across the UK’s

30 Nov 2021 09:21 | Produced by Tolley Read more Read more

Bare trusts ― income tax and CGT

This guidance note explains how trustees of bare trusts are treated for income tax and capital gains purposes. Although a bare trust is, in equity, a type of trust, for both income tax and capital gains tax purposes its existence is transparent. This means that no tax liability falls on the trustees

23 Mar 2022 10:40 | Produced by Tolley Read more Read more

Investors’ relief

Investors’ relief is a capital gains tax (CGT) relief on the disposal of qualifying shares in an unlisted company. A taxpayer making a disposal that qualifies for investors’ relief will pay tax at a rate of 10%.Although it is a separate relief, the rules for investors’ relief were intended as an

19 May 2022 07:01 | Produced by Tolley Read more Read more