We're aware that some users are experiencing technical issues which the team are working to resolve. See the Community Noticeboard for more info. Thank you for your patience.
📨 Have you signed up to the Forum's new Email Digest yet? Get a selection of trending threads sent straight to your inbox daily, weekly or monthly!

Tax on probate income

Options
I have an inheritance that is currently going through probate but unlikely to be completed in this financial year. The estate is earning dividend income above the sum allowable for 0% tax. My understanding is that my share of this will be treated as if it was my dividend income with tax calculated and charged against the year that the dividend was realised, rather than the year that the inheritance pays out. Firstly, is this correct?

My circumstances are that my current 2016/17 income is just above the 40% level and I was planning to make a small additional pension contribution to my employer's scheme to bring this back below the threshold.

If the 16/17 tax year is re-opened to take account of the inheritance income, that will be too late to make additional pension payments, so if I wanted to reduce the eventual tax liability I would need to make a bigger additional payment this year. Again, is this correct?

Comments

  • xylophone
    xylophone Posts: 45,607 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    I have an inheritance that is currently going through probate but unlikely to be completed in this financial year.

    Has probate been granted?

    Is there an exor account?

    http://www.litrg.org.uk/tax-guides/bereavement-and-tax/how-estate-taxed-during-administration

    https://www.gov.uk/self-assessment-tax-returns/returns-for-someone-who-has-died
  • Yes tax on this income falls in the tax year the dividends were actually paid. The estate administrator / executor is responsible for paying the tax and supplying beneficiaries with form R185 for their tax return / refund purposes.

    The executor should be able to give you a breakdown of the assets owned so you could estimate your tax liability from that, although they are under no obligation to do so at this stage.
  • Apodemus wrote: »
    I have an inheritance that is currently going through probate but unlikely to be completed in this financial year. The estate is earning dividend income above the sum allowable for 0% tax. My understanding is that my share of this will be treated as if it was my dividend income with tax calculated and charged against the year that the dividend was realised, rather than the year that the inheritance pays out. Firstly, is this correct?

    Assuming that you have an absolute interest in the residue, it is the other way around. E.g. say an estate dragged on for several years, collecting dividends, you would not have to put your share of dividends through your tax return until the estate pays it over to you. The estate should issue you with an R185 for each tax year that you receive a distribution of income.

    There are quite complex rules as to how income is recognised, read this for a start:

    https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem7608
  • Apodemus
    Apodemus Posts: 3,410 Forumite
    Ninth Anniversary 1,000 Posts Name Dropper Combo Breaker
    Thanks all, interesting links and I am now much clearer on the process. None of that had shown up on my previous searches through Google and HMRC.
This discussion has been closed.
Meet your Ambassadors

🚀 Getting Started

Hi new member!

Our Getting Started Guide will help you get the most out of the Forum

Categories

  • All Categories
  • 350.9K Banking & Borrowing
  • 253.1K Reduce Debt & Boost Income
  • 453.5K Spending & Discounts
  • 243.9K Work, Benefits & Business
  • 598.8K Mortgages, Homes & Bills
  • 176.9K Life & Family
  • 257.2K Travel & Transport
  • 1.5M Hobbies & Leisure
  • 16.1K Discuss & Feedback
  • 37.6K Read-Only Boards

Is this how you want to be seen?

We see you are using a default avatar. It takes only a few seconds to pick a picture.