Tax R185 and beneficiaries.

nad1611

Hi All,
If Beneficiaries do not pay Tax or at least that's what we've been led to believe, what is Tax Form R185, all about?

barak

nad1611 wrote: »

Hi All,
If Beneficiaries do not pay Tax or at least that's what we've been led to believe, what is Tax Form R185, all about?

Briefly, Form R185 is given by trustees to a beneficiary detailing the income paid to the beneficiary during the tax year. It also shows tax deducted from that income before it is paid to the beneficiary.

In some cases, where the beneficiary is not 'using' all their personal allowance - and depending on the type of income received, the beneficiary may be able to claim a tax rebate.

nad1611

Brilliant.Thanks a lot:j

nad1611

Just to clarify, when the R185 is given to the Beneficiaries, does that mean that the Tax if any to be paid has already been paid and the beneficiary does not need to do anything further, ie; does not need to inform HMRC?
Unless the beneficiary thinks they may be entitled to a Tax rebate.

How will we know the income, when added to our other sources of income, makes us liable to Income Tax at the higher rate. We wouldn't normally fill out a Self Assessment Tax return?

If the inheritance is treated as Income in this way, do you declare it for Tax Credit purposes? The Inheritance would be paid as a lump sum and not as an ongoing income.

getmore4less

The inheritance will be in two parts.

capital from the estate, income accrued during administration.

I think only the latter needs to be considered as income.

John_Pierpoint

It is exactly the same as getting a slip informing you of tax already deducted from savings interest or a company dividend.

We are assuming that the executor is holding back some of your inheritance and thus becoming liable for accounting for the tax on the income it is generating.

Is there any reason, other than sloth, why the executor is acting as your trustee, for example because you are not actually entitled to the capital, just the interest?
Perhaps you are still under 18?
Has the executor assigned the asset(s) to you and so is just your bare trustee?

You receive the income when you receive it (prior to the mid 1990's there used to be a procedure for appointing the income to the tax year in which the estate got it). This can produce a nasty bunching effect if the executor hangs on to it for (say) 3 tax years. This delay could result in a higher than normal rate of tax being payable on your higher than normal level of income. (ie 30% if you are a pensioner, 40% or 50% rather than the 20% (10% on dividends) standard rate.
A really helpful executor might offer to arrange the accounting and payments of income and capital to fit in with your tax accounting needs. (eg you could be retiring on the 6th of April and time the payments to suite your circumstances.:D)