TSEM7678 - Deceased persons: interests in residue: practical and computational aspects - residuary income

The guidance about absolute interests in residue at TSEM7602-TSEM7608 uses the term residuary income. This is a measure of the deemed income of the beneficiary.

The residuary income of an estate for a tax year is the aggregate income of the estate for that year less the allowable estate deductions for the year (ITTOIA 2005/s666 for non-corporate beneficiaries and CTA 2009/s949 for corporate beneficiaries).

Aggregate income

The aggregate income includes -

  • the income of the personal representatives charged to UK income tax taking into account allowable deductions
  • the income of the personal representatives that would have been charged to UK income tax if it was UK source income arising to a UK resident taking into account allowable deductions
  • income from stock dividends treated as arising to the personal representatives (ITTOIA 2005/s 411)
  • amounts from the release of loans to a participator in a close company where the participator has died (ITTOIA 2005/s419(2))
  • gains from contracts for life insurance where these are treated as income of the personal representative (ITTOIA 2005/s466)

but does not include -

  • income that any person is entitled to from a specific legacy or intestacy provision
  • income from assets that are not available for payment of the deceased’s debts.

Allowable estate deductions

The allowable estate deductions for a tax year include -

  • interest paid in the year by the personal representative in that capacity, 
  • annual payments for the year which are properly payable out of residue
  • personal representatives’ expenses (TSEM7900+)
  • any excess deductions from the previous tax year

but do not include expenses that have already been allowed in calculating the aggregate income.

No sum is to be counted twice as an allowable estate deduction

Interest

For this purpose, interest includes -

  • interest on unpaid legacies
  • interest arising during the administration period on debts of the deceased provided this is paid at a commercial rate and
  • in Scotland, interest on prior and legal rights

but does not include

  • interest on overdue tax (ITTOIA 2005/s869)
  • interest on unpaid inheritance tax (IHTA 1984/ s233(3)).