Tax on fixed rate bond interest when bond holder dies

Bobziz

Scenario:

3 year fixed rate bond taken out in Nov 2022 where interest is paid into the account annually but cannot be accessed until the fixed rate period ends. Interest is reported to HMRC annually by the bank.

Bond holder dies April 5th 2024 with one interest payment having been made into the account in Nov 2023.

Account remains open and earning interest until closed by the executor. Executor can close account at any time with the necessary paperwork.

My assumptions which I'd appreciate views on are:

1. As the interest was not accessible during the account holders lifetime, it is not counted for income tax purposes but is for estate valuation purposes up until the date the bond holder passed, i.e. one year of interest payments.

2. All interest paid from Nov 2022 until the point at which the executor closes the account is counted as estate income and is therefore taxable at 20%.

Does this sound about right?

Many thanks.

Also posted on the savings and investments forum

Marcon

Bobziz said:

Scenario:

3 year fixed rate bond taken out in Nov 2022 where interest is paid into the account annually but cannot be accessed until the fixed rate period ends. Interest is reported to HMRC annually by the bank.

Bond holder dies April 5th 2024 with one interest payment having been made into the account in Nov 2023.

Account remains open and earning interest until closed by the executor. Executor can close account at any time with the necessary paperwork.

My assumptions which I'd appreciate views on are:

1. As the interest was not accessible during the account holders lifetime, it is not counted for income tax purposes but is for estate valuation purposes up until the date the bond holder passed, i.e. one year of interest payments.

2. All interest paid from Nov 2022 until the point at which the executor closes the account is counted as estate income and is therefore taxable at 20%.

Does this sound about right?

Many thanks.

Also posted on the savings and investments forum

Better to post in one place only.

If you google on the title of your question, you get lots of helpful links eg https://techzone.abrdn.com/public/iht-est-plan/dealing-investments-after-death#:~:text=A%20bond%20provider%20may%20add,1%25%20of%20the%20fund%20value.

Have you looked the provider's website and/or the paperwork (if you can find it!) to check the exact conditions for this particular contract?

https://community.hmrc.gov.uk/customerforums/pt/097f17c5-77af-ed11-9ac4-00155d975688 might also help - you can always post your own question if necessary.