Income from an estate

Income from an estate

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Hi

I'm a bit confused with the treatment of income from an estate.  

I am fine with the reporting of income on the estate tax return and working out the tax on this.   I'm just confused with how everything fits in with the beneficiaries.

Am I right in thinking that when the beneficiaries receive money from the estate it is non taxable?  If so, what is the R185 estate income form?  

Perhaps its the capital values that are not subject to income tax when distributed and its just the income from the estate that is taxed on the beneficiary when distributed and this is when the R185 fits in? 

Also, what distributions need to be disclosed on the estate return?  All distributions, or just distributions of income?

Can anyone clarify please?

Thanks

Replies (3)

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By LyneT
16th Jul 2012 13:01

This is quite a big area and the assessment on the beneficiary depends on whether they have a limited interest in the residdue, an absoloute interest in the residue or they have been bequeathed specific gifts.

I have prepared quite a long explaination for this for some of my executor  clients.  If you PM me with your email address I can send it to you. 

I am away from the office until Friday this week if you can wait that long.

 

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By MBK
16th Jul 2012 13:11

OK - here's a brief summary of how it works

You have to split all the income into two streams - dividend income and everything else. The estate has no liability on dividend income, 20% on everything else. Any allowable expenses are deducted from dividend income first.

This only applies to (broadly) income arising on the residue. Where there is income arising on specific legacies then that income should be returned directly by the legatee.

So, at this point you have two streams of income - and the executors may make a distribution from the estate bank account. That distribution is deemed to come out of the "everything else" stream first, and only out of the dividend stream once the cumulative "everything else" stream is exhausted. The estate will have paid basic rate tax on this income. That is where your R185 entries come from and how you decide what to put on the R185.

The above para does not apply in the year the estate administration is completed. In that year the balance of the two streams is deemed to be paid regardless of what is actually distributed.

The beneficiaries then put the income onto their personal returns directly from the R185s and pay tax on the income (or potentially get a refund of basic rate (but not dividend) tax) as if the income were just any old income of the type in question.

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By chillertwist
17th Jul 2012 21:55

Thank you so much, that is exactly what I was looking for and really helps.

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