Income tax for beneficiaries of estates

Produced by a Tolley Trusts and Inheritance Tax expert

Trusts and Inheritance Tax

Guidance

During the period of administration, personal representatives (PRs) receive income arising from the deceased’s assets until they are sold or transferred to beneficiaries. They also receive income from bank accounts or other investments which they have set up to hold cash pending distribution of the estate. Income tax is paid at standard rates on these sources of income.

See the Income tax during administration guidance note.

This guidance note explains how the estate income is allocated to beneficiaries as taxable income so that the estate income is eventually taxed at the beneficiaries’ personal rates.

Principles of taxing beneficiaries on estate income

Beneficiaries’ entitlement to estate income, and consequently their liability to income tax, depends on the nature of their interest under the Will or intestacy. The most common type of interest which gives rise to an income tax liability for the beneficiary is an absolute interest in residue. This is described below. Other types of interest, which have their own particular features, are covered in the Beneficiaries’ estate income ― minor

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