SALF806 - Other Issues: Self
Assessment for Personal Representatives and the Beneficiaries of
Estates
Self assessment for personal representatives
Self Assessment procedures apply
TMA 1970/Section 8A and ICTA 1988/Section
700(4)
| 8.23 | Personal representatives
are responsible for making a return of any income, profits or gains
arising to an estate and for paying any income tax or capital gains
tax that is due. They must deduct tax from all estate income at the
basic rate (or equivalent investment rate on interest and the
dividend rate for dividend income) before distributing the income
to beneficiaries. |
| 8.24 | All the ‘process
now-check later’ procedures of self assessment apply to
personal representatives. For example, the Trust and Estate tax
return includes a self assessment which may be subject to
correction and enquiry in the normal way, and the same fixed time
scale for filing the tax return and for the payment of tax
apply. |
| 8.25 | It should also be noted
that in addition to the tax return required from the personal
representatives covering the liabilities of the estate, they may
also be required to supply information relevant to the tax
liabilities of the beneficiaries of the estate. They should use
form R185 (Estate Income) to notify the beneficiary of their income
from the deceased’s estate for the year and the tax paid on
that income. |
Self Assessment for Beneficiaries
Self Aasessment procedures apply
Chapter 6 Part 5 ITTOIA
| 8.26 | But the tax arising on
the income from the estate of a deceased person is also accounted
for in the hands of the beneficiaries. The beneficiaries who have
an interest in the estate should enter the income attributed to
their share of that interest on their personal self assessment tax
return, but, because to those beneficiaries of UK estates this
income is taxed income, the associated tax credit should also be
entered in their personal self assessment tax return. |
| 8.27 | This procedure means that
a beneficiary who is a higher rate taxpayer will be liable to
further tax on his or her share of income from the estate. Other
beneficiaries may have no further liability, or may be entitled to
a repayment of part, or all, of the associated credit, depending on
their individual circumstances. |
| 8.28 | In general terms all the
‘process now-check later’ procedures of self assessment
apply to both personal representatives and to the beneficiaries of
estates, but there are special rules for beneficiaries with an
interest in the residue of an estate. |
Self assessment for residuary beneficiaries
| 8.29 | The ‘residue’
of a deceased person's estate is the amount remaining after the
payment of any debts, specific legacies and other outgoings. Any
income arising on the residue of the estate is attributed to the
beneficiaries with an interest in that residue. |
| 8.30 | The beneficiaries are
taxed on the lower of either
- sums paid out to them from the estate in
the year of assessment, or
- the amount of income that has arisen on
their share of the residue.
|
Limited interests
ITTOIA/Sections 654 and 661
| 8.31 | Beneficiaries, such as
life tenants, who are entitled to have the income, but not capital,
of the estate paid to them are said to have a ‘limited
interest’ in the residue. Under Self Assessment they are
liable to tax on payments made to them out of an estate. Any such
payments are treated as payments net of tax at the appropriate rate
(either the basic rate, or, for payments out of dividends, the
lower rate). This means that beneficiaries who are non-taxpayers,
or lower rate taxpayers, are entitled to a repayment of some or all
of the tax. Higher rate taxpayers will have additional tax to
pay. |
| 8.32 | If, on completion of the
estate, any amounts to which the beneficiary is entitled remain
unpaid they will be deemed to be income of the year of assessment
in which the estate is wound up. |
Absolute interests
ITTOIA/Sections 652 and 660
| 8.33 | Beneficiaries who are
entitled to a share of the whole or part of the income and capital
of the residue are said to have an ‘absolute interest’
in the residue. Under Self Assessment they are liable to tax on
payments made to them out of the estate. Any such payments are
treated as income of the year of payment, and again any such
payments are treated as payments net of tax at the appropriate
rate. |
| 8.34 | But any such payments are
only treated as income to the extent that they do not exceed the
‘aggregated income entitlement’ of the beneficiary at
the time the payment is made. The ‘aggregated income
entitlement’ is the cumulative share of the estate income,
for all years up to and including the year of payment, to which the
beneficiary is entitled whether or not that share has actually been
paid out. In other words the beneficiary is liable to tax on the
lesser of the cumulative share of estate income, or the amounts
actually paid to them. |
| 8.35 | At the end of the
administration any part of the beneficiary's ‘aggregated
income entitlement’ that remains unpaid is treated as paid
immediately before the end of the administration period. So
beneficiaries are charged on the whole of their share of the estate
income even if it has not been paid to them when administration is
completed. |
| 8.36 | If, when arriving at the
beneficiary's share of estate income, there is an excess of
expenses over income that excess is carried forward and deducted in
the following year. Similarly if the ‘benefits
received’ from the estate fall short of the beneficiary's
estate income that income is reduced by the shortfall in the year
in which the administration ends. Benefits received in this context
include sums paid on completion of the administration. |
Successive interests in residue
ITTOIA/Sections 671-676
| 8.37 | ‘Successive
interests’ in residue can be held where an interest is
disclaimed or varied by the original beneficiary. The subsequent
interest is treated as having always existed and held by the
beneficiary entitled to receive the payment when it is made. So, if
a beneficiary receives a payment for a period before his or her
interest came into being it is treated as his or her income.
Payments made in respect of an interest which has ceased are
likewise treated as the income of the person entitled to them. The
result is that each beneficiary is assessed only on the income paid
to them. |
| 8.38 | Different rules apply
where a life interest is terminated by death. Any sums paid after
the beneficiary has died are treated as his income for the year of
assessment in which the interest ceased. |
Statement by personal representative
ICTA 1988/Sections 700(5) and (6)
| 8.39 | Each beneficiary may
request a statement from the personal representatives of the
amounts deemed to be paid as income and the tax deducted,
distinguishing between tax at lower and basic rates. The personal
representatives are required to provide any such statement if one
is requested. |
