Can I spread the beneficiary's income

Client will receive a R185 from a Will Trust covering various tax years. Can I spread it?

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Client is a beneficiary of a complicated estate following the death of her husband. It has taken almost 3 years to administer the estate. I am told that the estate solicitor will shortly be preparing a form R185 for the beneficiary detailling the income arising in the estate and the tax deducted. This covers income that arose during 21/22 and 22/23. He is offering to declare all of the income in 22/23. 1. Can he do this? 2. If there is income declared for 21/22 this could be beneficial as she has some basic rate capacity in that tax year, but I will need to amend her 21/22 tax return and there will be a substantial bill. Are HMRC going to charge interest and late payment penalties?  The beneficiary has not received any income to date from the estate - a distribution is planned in the next few months but this may not be in time for the 31/1 deadline. 3. If all the R185 income is declared in 22/23 or 23/24 is there any way the beneficiary can allocate it to various tax years? Is this something that can be agreed with HMRC? Any assistance would be gratefully received.

 

Replies (10)

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By Wanderer
21st Dec 2023 15:02

nelfi wrote:

The beneficiary has not received any income to date from the estate - a distribution is planned in the next few months but this may not be in time for the 31/1 deadline. 

If true it is 2023/2024 income for the beneficiary. But are you sure the beneficiary hasn't received any distribution over the past 3 years?
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Replying to Wanderer:
Out of my mind
By runningmate
21st Dec 2023 17:37

A key point -
The OP says the beneficiary has not yet received any INCOME
Wanderer asks if the OP has received any DISTRIBUTION?

A distribution (say the transfer of an asset) might be regarded as a distribution of income for tax purposes if income had arisen in the estate by the time the distribution was made. So although the OP thinks there has been no income to the beneficiary in reality for tax purposes there may have been.
The tax implications depend upon the facts. When the facts are established there are no options to declare income in the wrong year.
N.B. Income may arise in the estate, but not immediately arise for the beneficiary. So the income of the estate in any year may be different from the income of the beneficiary from the estate in that year.
If there really has been no distribution from the estate yet then the beneficiary's income from the estate prior to 23/24 is nil.

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Replying to runningmate:
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By FactChecker
21st Dec 2023 19:20

All excellent points ... to which I'd add that OP shouldn't rely on any tax advice from the "estate solicitor" ((unless they are that rare beast who is also qualified as a tax adviser).
But the solicitor should be able to provide the facts ... and certainty of ALL the facts is what is desperately needed here.
Assuming competence by those involved, any estate that has required 3 years of administration must be fairly complex ... so OP (or their advisor) will need the full facts, not just some of them provided as an answer to a particular question.

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Replying to FactChecker:
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By Wanderer
22nd Dec 2023 07:54

FactChecker wrote:

any estate that has required 3 years of administration must be fairly complex ...

And also fairly unusual not to have any distributions, hence my question, expanded upon by runningmate.

How a solicitor can offer to declare all of the income in a particular tax year is beyond me & emphasises the fact that they shouldn't be relied upon in this matter.

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By nelfi
22nd Dec 2023 09:49

Thank you all - I will double check the distribution point - but assuming for a minute I am correct and there is a large payment in 23/24 is there any concession available to be able to allocate the receipt into various tax years - or will it all just have to be taxed on the beneficiary in 23/24. Happy xmas!

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Replying to nelfi:
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By Wanderer
22nd Dec 2023 09:57

No, Yes.

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Replying to nelfi:
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By FactChecker
22nd Dec 2023 14:24

"is there any concession available to be able to allocate the receipt into various (earlier) tax years?"

Not unless they know how to:
- make a part distribution now and invest the proceeds in a time-machine;
- travel back 3 years, then 2 years, then 1 year and make remaining distributions!

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By Tax Dragon
22nd Dec 2023 17:29

If the numbers are sizeable, and it sounds as if they may be, then you should perhaps read https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-..., which includes many words, rather than relying on a few words (however wise) in here.

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By kim.shaw-and-co.com
25th Dec 2023 22:00

UK Estate income during administration (i.e. income arising after the individual is deceased) is taxable on UK executors (personal representatives) on an arising basis. Therefore the solicitors will need to account for it consistently as income of the tax years in which it arose, and not income of the period in which the administration was concluded (unless one and the same).

In general, income from the residue of an estate during administration is not taxable on a beneficiary unless / until a distribution is made out of it by the executors. When it is, the distribution is matched to (cumulative estate) income before any capital and is taxable income of the beneficiary in the tax year in which they receive the distribution.

You therefore need to understand whether any distributions were made and what documentation is available to support them having been made especially if (e.g.) they arose on account of a book entry in solicitors' client accounts rather than a payment of cash to a beneficiary. In such cases at the very least you would need copies of documented decisions made by the executors to that effect.

Any subsequent interest credited to beneficiaries on monies held to their order in client account by solicitors administering an Estate would then also become personal taxable income of the beneficiaries (on their own funds) from the date of the distribution from the Estate up to the date of receipt of interest on any monies represented by that distribution.

There is no scope for spreading income received by a beneficiary back to the tax years in which the executors received it unless prior distributions from the Estate were made against which it can be matched. If such distributions were in fact made, then there is no scope for deferring the year in which any Estate income comprised in the distributions is taxable. If excess income over distributions arises in a tax year, then it is automatically deferred until distributed.

The key information you need to make any meaningful progress in terms of accounting for tax on Estate income of a beneficiary is details of all distributions made to the beneficiary and income of the Estate in each tax year of administration attributable to the beneficiary which might be matched to those distributions - in effect by way of a 'top-slice' of any distribution received.

If the Estate includes any foreign elements then seek specialist help, and bear in mind that cash is not the only form in which a distribution can be made - if there have been earlier distributions otherwise than in the form of cash this may not prevent income from being matched to those distributions. Again, if it becomes difficult, seek specialist help.

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