R185 confusion

nige123

I've sat down to do the sums in order to arrive at the figures to enter on R185 certificates, and discovered that it's not quite as straightforward as I had imagined. I had previously thought that it was a matter of dividing all interest earned during administration and dividing it between the residuary beneficiaries in proportion to their shares of the residue, but on closer reading of the R185 form I see that it talks about "the beneficiary’s share of the income from the residue"

If the residue is e.g. 90% of the gross estate, do I simply take 90% of the total interest earned as arising from the residue, or do I have do some tricky arithmetic to allow for e.g. fixed legacies being paid out earlier than most of the residue?

Or does all interest earned form part of the residue and I'm reading too much into the wording on the form?

nige123

I've now discovered the bit of HMRC manual covering the calculation of residuary income, at http://www.hmrc.gov.uk/manuals/tsemmanual/TSEM7678.htm

I presume where it talks about "the amount of any income falling to be paid to persons entitled to specific legacies", this covers the case of a beneficiary being left e.g. the capital and income from a specified bank account?

Given that the estate I'm dealing with has nothing like that, I'm now thinking that my original understanding, that essentially all interest earned is treated as going to the residuary beneficiaries, is correct. I think I've been confusing "income from the residue" with interest earned on the residue.

John_Pierpoint

Specific bequest are entitled to interest if the cash bequest has not been paid out within 12 months of the death.
I would think that a bequest like "I leave my investment property "The maisonettes" to be shared equally by my sons being alive at my death ......." would include the rents being paid thereon.

How you dish out the income of the estate is a matter of law, HMRC only gets interested if they think you are stringing things out and trying to run a discretionary trust, and accumulating income into capital without paying the 45% income tax and regular capital levy of IHT.
The only people to whom you are likely to have to justify the proportional distribution and its timing are likely to be the beneficiaries.
There could be a complexity if you have paid income tax and IHT on accrued income and dividends, when the beneficiary is a 40% or 45% tax payer.
Fortunately I only had one of those and they decided that, for the small amount of income involved, they did not want the complexity of trying to recover half the tax there on.

The message is discuss the implications with the beneficiaries, but try to distribute income producing assets as soon as possible and make stage payments of income to shift administration problems to the beneficiaries and avoid doing annual tax returns on behalf of the estate/trust.