Beneficiary of an estate - income distribution

A beneficiary is entitled to all the residue of an estate, is income distributed first

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Under the terms of a will, the widow is entitled to all the residue of an estate, both capital and income. 

She received a distribution from the estate in the tax year of the late husband's death, which exceeded the income earned by the estate from the date of death to the end of the tax year (call the income in this period £2k). Per TSEM7608, it would appear that if the widow is a higher rate tax payer, she will need to account for the income tax due on the £2k, with a deduction for the tax already paid by the Personal Representative's. Or if she is not a taxpayer, she could reclaim the tax suffered by the PR's. 

I cannot see it explicitly stated, but  I understand that the income earned in the estate is effectively distributed to her in priority to any capital distribution? Is that other people's understanding please?

Thanks in advance

Exercpt from TSEM7608 below   

TSEM7608 - Deceased persons: absolute interests in residue - liability during the administration period

From 6 April 2024, as personal representatives are not required to report to HMRC or pay tax on estate income of less than £500 per annum, beneficiaries will not be provided with a form R185 (Estate Income) or be required to report or pay tax on amounts within this sum. ITTOIA/S680B. 

A beneficiary is treated as having received income from an estate only if a payment is made to the beneficiary in the year of assessment concerned. If no payment is made to a beneficiary in the year of assessment, the residuary income is carried forward to the next year.

A beneficiary who receives a payment from the estate is treated as having received as income for that year the lesser of

the amount actually paid to the beneficiary from the estate in that year, or

the amount of available income from the date of death until the end of the tax year in which the payment is made, less any amounts which have already been treated as the beneficiary’s income for earlier years.

The payment is treated as having been made from the following sources in this order

first out of income which has borne basic rate tax

then out of income which has borne savings rate tax (for years where this rate applies)

finally out of income which has borne dividend rate tax.

Any residuary income that is not treated as the beneficiary's income is carried forward to the next year.

Replies (3)

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Out of my mind
By runningmate
09th May 2024 11:52

You have quoted from the HMRC manual -

A beneficiary who receives a payment from the estate is treated as having received as income for that year the lesser of

the amount actually paid to the beneficiary from the estate in that year, or

the amount of available income from the date of death until the end of the tax year in which the payment is made, less any amounts which have already been treated as the beneficiary’s income for earlier years.

It follows that income is distributed in priority to capital.
RM

Thanks (2)
Replying to runningmate:
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By jasonowsky
09th May 2024 12:17

My exact understanding.

Thanks (0)
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By rjames
09th Jul 2024 10:36

Apologies if anyone feels it inappropriate for me to piggyback this thread ...

But I read: "Or if she is not a taxpayer, she could reclaim the tax suffered by the PR's"

I previously received great advice on AccountingWeb re completing R185 Forms for my late mother's estate

My children were the residuary beneficiaries. One does Self Assessment and had already used up the Dividend Allowance - no problem there. I helped the other two complete R40 Forms. Neither had any other dividend income. HMRC have repaid the tax on interest, but not on the dividends paid by the estate. Is this correct? And if not, do they just write to HMRC to query this?

I have looked a lot online but can't find a definitive answer - not large amounts, but well worth the price of a letter

Thanks in advance for any assistance

Thanks (0)
avatar
By rjames
09th Jul 2024 10:36

Apologies if anyone feels it inappropriate for me to piggyback this thread ...

But I read: "Or if she is not a taxpayer, she could reclaim the tax suffered by the PR's"

I previously received great advice on AccountingWeb re completing R185 Forms for my late mother's estate

My children were the residuary beneficiaries. One does Self Assessment and had already used up the Dividend Allowance - no problem there. I helped the other two complete R40 Forms. Neither had any other dividend income. HMRC have repaid the tax on interest, but not on the dividends paid by the estate. Is this correct? And if not, do they just write to HMRC to query this?

I have looked a lot online but can't find a definitive answer - not large amounts, but well worth the price of a letter

Thanks in advance for any assistance

Thanks (0)