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Taxation of Music Royalties Received after Death?

Estate royalty income tax, R185s, Accountancy costs, Post-cessation receipts etc. Widows Position?

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A musician client died recently. He had ceased performing decades ago, but in the meantime had received royalties from all over the world totalling around £5,000 per annum. These were disclosed on Page TR 3 box 17 "Other taxable income" (Post-cessation receipts) of the SA Return. It would appear that the widow will now become entitled to the fluctuatng royalties (maybe £4,000 to £5,000 per annum) until such time they are no longer payable. Deceased client never once left the UK to perform.

I have the following questions.

1) Ascertaining the royalty income annually has been a time-consuming matter. Are the Executors able to deduct accountancy fees for the time spent in determining annual royalty income in arriving at the income tax on the estate royalty income. Or is the accountancy deduction made in arriving at the widow's R185 residuary estate income. Or is no deduction available at all.

2) If accountancy is deductible, is it done on a cash basis.

3) Is there an alternative method of taxing the royalty income in the hands of the deceased. It is difficult to understand how this could be done if future royalty income is unable to be quantified.

4) After the Estate has been wound up, does the widow obtain a tax deduction for accountancy from royalty income on her own personal tax return.

 

 

 

 

Replies (12)

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By Tax Dragon
22nd Jan 2022 02:43

?

Widow is taxed on what she receives from the estate. If she doesn't receive the income, because it's been spent on fees, she isn't taxed on it.

Or that's what I think at quarter to 3 in the morning. Might have egg on face for breakfast if I wake up realising I was talking nonsense.

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Replying to Tax Dragon:
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By More unearned luck
22nd Jan 2022 16:33

Awake yet? Most or all of the fees paid by PRs will be capital in nature and can't be deducted from the income of the estate. Expenses that relate to both revenue and capital are treated as capital, although in the case of trusts, by virtue of a practice hollowed by time, this doesn't apply to accountancy fees for preparing (income) tax returns and annual accounts.

If in a tax year the estate has £X income and has distributed assets valued at £Y of any type to the residuary legatee, then she (the pronoun in this case) has net income of the lower of £X and £Y. Any undistributed income for early year(s) augments X.

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Replying to More unearned luck:
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By Tax Dragon
22nd Jan 2022 16:51

OP asked specifically (and I thought only) about "accountancy fees for the time spent in determining annual royalty income". I agree with you and Hugo that such fees really shouldn't amount to much, but whatever the amount, it sounds like a revenue expense of the trustees. It won't reduce the estate income tax, but would reduce the widow's estate income.

I'm not tasting egg.

But I do have a cold.

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Replying to Tax Dragon:
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By Tax Dragon
22nd Jan 2022 17:58

Though it might depend on what 'determining' means - what the fees are for. (And in the context of royalties.... hm, is that egg I can taste? Good stuff this Calpol!)

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By Hugo Fair
22nd Jan 2022 13:46

There seem to be five areas of (massive) confusion going on here:

1. There are 3 'taxpayers' from HMRC's perspective - the musician client (prior to his death), his estate (from death until grant of probate, his widow. There is no mention as to whether OP has been appointed as agent for 2nd or 3rd taxpayer?

2. Ascertaining the royalty income annually. This shouldn't be "a time-consuming matter", as the amount of income is irrelevant until it is paid - which should be easy to identify (unless there are numerous bank accounts dotted around the world)?

3. I'm always wary of sentences that start with "It would appear that ..". The widow either is or is not now entitled to the fluctuating royalties, and in order for that to happen someone will need to notify the revenue generators (of where to send the money) - so has that been done?

4. So you now have known sources (and amounts) of income for three parties for known periods ... so the main question is simply who will be preparing/submitting the relevant tax returns (and on what terms - including whether or not fees are charged for preparation of estate accounts)?

5. The use of the word "deductible" is unclear - does its use within various questions relate to whether a fee/costs can be deducted from income prior to disbursements, or to whether a particular fee is tax deductible?

Either I've completely misunderstood something fundamental in OP's question, or a complete re-think is advised based on normal procedures in this situation.

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Replying to Hugo Fair:
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By More unearned luck
22nd Jan 2022 16:18

I quibble the event that terminates the estate's interest in the income. I don't think that it is even arguable that this period ends as soon as the granting of probate. It ends when the executors have done everything that they need to do to deal with the estate, with the exception of completion of a formal or informal tax return for the final period and payment of any tax due (otherwise you find yourself in a catch-22).

The executors can 'assent' an asset during the period of admin, which if done for the royalties would bring forward the time for which it is the widow's. income. I note however that many works by dead composers, authors etc are marked as copyright the estate of X, which I don't think is literally (sic) true.

The OP seems very optimistic about the remaining life of the widow as UK & EU copyright has 70 years to run.

I too can't understand how it can be time consuming going through the bank statements looking for royalty credits. A task made even easier if there is a royalty bank account.

Organisations like the PRS also help with royalty collection (and have lists of royalties collected but not claimed on their websites).

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Replying to More unearned luck:
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By Hugo Fair
22nd Jan 2022 17:52

You are, of course, quite correct regarding the trigger that terminates the estate's interest in the income.
I can't even plead TD's excuse (not being posted in the middle of the night)!
It was just sloppy wording because in practice it is often the granting of probate that triggers distribution, which in turn is seen (by the beneficiaries) as the start of them taking personal responsibility. But your description leaves less vagueness in play.

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Replying to Hugo Fair:
By penelope pitstop
22nd Jan 2022 18:26

Thanks for your response.

It is around a year since death. Due to Covid etc. probate will probably be granted shortly. So it may have taken 15 months after death to obtain probate.
In the meantime, some royalties have hit the deceased's bank account after death.
One thing I have learned about estate expenses is that they appear to be deductible on a cash basis. So revenue expenses paid out after the estate administration has come to an end will never obtain any tax deduction of any sort.
If client died say 31 December 2020 and royalties were a steady £5,000 per annum and it took £300 in accountancy to determine that, to my mind the income tax position should be as follows (and I stand to be corrected):

40% taxpayer musician when alive (royalties are post-cessation receipts):
(£5,000 less £300 cash basis) @ 40% = £1,880

2020/21 Deceased estate part year 1 (3 months only)
£1,250 @ 20% = £250 (first £300 accountancy bill would not be raised until after 5 April 2021.

2021/22 Deceased estate full year
£5,000 with presumably no accountancy deductible @ 20% = £1,000
Widow's measure of 2020/21 and 2021/22 income:
a) 2020/21 £1,250 gross, £1,000 net
b) 2021/22 £4,000 net less £300 = £3,700 net
Grossed up estate income £4,625

In other words, I assume the accountancy cannot be a deductible royalty at the level of the executors tax liability. But does it reduce the residuary beneficiary's net estate income.

If the above is correct then the revenue accountancy bill needs to be billed promptly to stop it falling outside of the administration period because post-administration expenses cannot be carried back in time.

I would welcome any correction to the above.

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By penelope pitstop
22nd Jan 2022 18:04

Okay. So you geniuses could wave a magic wand and get the royalty figures in a few minutes? I doubt it!

Time spent extracting royalty figures from bank statements - forget it. Elderly client couldn't locate most of them.
Time spent talking the matter through with elderly client - a lot more than a few minutes.
Time spent/wasted phoning the royalty payers - forget that, they won't speak to me without client authority.
Time spent obtaining client authority to correspond with royalty payers - a few hours, posting etc.
Time spent writing to and emailing royalty payers for income information. Hours!
Time spent reminding royalty payers for income information because they couldn't be bothered to respond correctly to original correspondence - Hours!
Time spent answering royalty payers further security questions so that they could deal with my queries. Difficult to quantify.
Time spent accessing online client income details from royalty payers online service?
An hour or so.
Finding correct email addresses to correspond with where royalty payer has several points of contact and then being passed from pillar to post? Hours
By the way, one of the royalty payers has vanished off the face of the earth!

You would not believe the time spent in getting some credible, accurate figures to send to HMRC.

And now the royalties have been inherited by the elderly widow - and it seems she is likewise confused by what's what on the royalty scene/bank statements etc. (They live hundreds of miles away).

Welcome to the real world!

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Replying to penelope pitstop:
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By Hugo Fair
22nd Jan 2022 19:14

I get that you've found this stressful and time-consuming ... but my original point was that "This (ascertaining the royalty income annually) shouldn't be a time-consuming matter, as the amount of income is irrelevant until it is paid".

In other words, cherchez the recipient bank accounts (not the origination).
Note: not paper statements but records from the bank(s).

If elderly client doesn't know bank account details then you are stumped - but spending all that time chasing the royalty payers seems to me to be a waste of time (even if it had been easier and more productive you'd still not know for certain what deceased client had actually received & when).

You wouldn't (or at least I wouldn't) chase every supplier for copies of all their invoices when sorting out an Estate tax return - just look for actual expenditure made by deceased and ascertain the reason for each item. And this is basically the other side of the same coin.

BTW you've skated by my other (meant to be helpful) questions - in particular whether you have been appointed as agent for the estate or indeed for the spouse of deceased? If not, then I can't see why you'd want to spend ANY time on these issues.

EDIT: Maybe a bit obvious - if "A musician client died recently .. but had received royalties from all over the world totalling around £5,000 per annum" - then how were you ascertaining this royalty income prior to his death?

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By Tomazaan
28th Jan 2022 17:28

OK, this is off topic but it is Friday afternoon and I have nearly done all my SA returns.
You should have a look at a film called "Searching for the Sugar Man". It is about a singer called Sixto Rodriguez who released a couple of albums (in the 1960s, I think) to no great acclaim in the USA (his home) but became a runaway hit in South Africa. It was only when a South African started to wonder what happened to Rodriguez that it was discovered that Rodriguez was alive and well but totally unaware of his stardom in South Africa. A heart warming story that leaves a question mark over what happened to his royalties.

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By geoffmw1
28th Jan 2022 22:20

The royalties presumably come from recordings that the musician played in and are being broadcast. The executor needs to advise the PRS that the widow is now entitled to receive payment and it is for the widow or her advisor to ensure that PRS is advised of the bank account into which payments are made periodically. PRS will also produce schedules which the widow will need to retain. When I was in practice I had some clients who authorised PRS to supply duplicates to me.
The record company will also be a source of payment in respect of records sold which include any royalties due to the musician during the copyright period.
A previous reply points out that there may be legatees after the widow 's own demise.

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