Complicated Rental Income Tax Question

YORKSHIRELASS

Hi, hoping there is a tax expert who can help me answer this one for a family friend:

Mrs Smith owns a second property and receives rental income. On 1/1/11 she receives £12k annual advance rental. £3k is included in her tax return for 2010/11, the remaining £9k is carried forward to the following tax year.

On 30/6/11 Mrs Smith dies. Her entire estate including the property is passed to her son Mr Jones.

The question is who is liable for the tax on the remaining advance rental to 30/12/11? Is it as simple as saying £3k should be declared on Mrs Smiths final tax return and Mr Jones is liable for the remaining £6k. Bearing in mind that Mrs Smith received the £12k into her bank account this doesnt seem right to me.

If anyone is able to advise us on this I would be very grateful.

agrinnall

My initial thought is that having received the income in 2010/11 then the whole £12K should have been declared on the return for that year. However, when I was a landlord I never received advance rental payments so maybe there's some rule that allows it to be carried forward. If so then maybe there's a similar rule that allows that income to be pro-rataed monthly across the rest of the year, in which case your split of £3K on Mrs Smith's return and £6K on Mr Jones' would be right. If such a rule doesn't exist then it's more likely that the whole of the remaining £9K would be part of Mrs Smith's estate and would be on her final return.

00ec25

exam question???

normal accruals rules apply - see HMRC here

as to who is laible - the estate or the son, it depends on when probate was granted and therefore liablity (and thus potentially the marginal rate) changes between them

antrobus

Assuming that the £12k annual advance rental was in respect of the year ended 31/12/11; then the accounting treatment so far would be correct; £3k relates to the tax year 2010/11 and £9k relates to the tax year 2011/12. If Mrs Smith dies on the 30/6/11, then £3k (for the months April-June) would fall to be taxed in Mrs Smith's hands for 2011/12, the balance would be the income of the estate until such time as probate was completed and the property in question passed into the possession of Mr Jones.

Edit: Yes, it does sound like an exam question doesn't it

YORKSHIRELASS

Thank you for the replies. No its not an exam question, its a real scenario, although I have changed the dates and amounts to make it easier to follow!

The Executors have been asked to fill in a R27 form and were going to apportion the rental income earned by "Mrs Smith" up to the date of death and treat the rest as Estate Income so this fits with the comments above.

One of those things that the more you think about it the more you can tie yourself in knots so thank you for the advice.