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Date Posted:
27-Aug-2013 15:26:31
Income Tax

Income tax is applicable to the deceased’s estate according to the tax year in which income is received.

• Obtain and complete HMRC form R27 for the estate if the deceased paid income tax. This form will enable you to claim any income tax payable to the estate. In order to complete this form, details of the deceased’s income from April 6th in the year of their death, to the date of their death, will be used.
• It is possible to offset interest paid during that same tax year on any loans taken out to pay for inheritance tax against the income tax bill.
• Some of the estate’s assets may have been taxed at source, i.e. before they are paid to the estate. This may be the case with the balance of a savings account, for example. However, other income such as rent will be paid directly to you without the deduction of tax. Where this is the case, it is taxable at the standard rate and no personal allowance is available to you.
• Each beneficiary must account in their own tax return for their share of the income of the estate earned between the death of the deceased and the distribution of the estate. However, the beneficiaries are entitled to credit for any tax paid on their share by you.
• If a beneficiary is not liable for income tax they can reclaim any tax deducted from their share.
• If a beneficiary is a higher-rate tax payer then they will be liable for the difference between standard and higher rates of tax on their share.
• It will be necessary to complete a short HMRC form (R185E) for each beneficiary affected, to enable them to deal with income tax implications relating to their share of the estate. The form will show the share of tax, and income, for each beneficiary.
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