TSEM7904 - Deceased persons: Personal representatives' expenses: Context

Under general law, all income arising on the assets of an estate during the administration period is the income of the personal representatives. They are taxable on that income as it arises to them. When they pass the income to the residuary beneficiaries along with the assets in the estate the entire payment is, in law, one of estate capital in the beneficiary’s hands. Despite its capital nature, the part of the payment that reflects the income received by the personal representatives is deemed to be taxable income in the hands of the residuary beneficiary receiving it.

The great majority of residuary beneficiaries have an absolute interest in residue, that is, they are entitled to receive both the income and capital of their share of the estate. It is only for such beneficiaries that personal representatives’ expenses enter into the calculation. A sum paid to such a beneficiary may include both income and capital so it is necessary to establish the income element of each payment. Payment in this context includes the transfer of assets or paying a beneficiary’s debts. The legislation sets out how the taxable amount is calculated (TSEM7608).

Personal representatives need to determine the extent of the income that is chargeable on the residuary beneficiary in order to complete the form R185(Estate Income) or similar statement so that, in turn, the beneficiary can include this income and the tax paid on the income on their own self-assessment return.