The period of administration runs from the day after the date of death and ends when the estate is effectively wound up. During that period, income received by the personal representatives and gains realised on the sale of estate assets are assessed on the estate as a separate entity.
It may not be easy to determine the date of cessation of the administration. HMRC takes the view that it is the date when residue has been ascertained, but accepts that the administration may continue beyond that point. For practical purposes, it is a useful rule to apply. The residue is ascertained when all assets are collected and debts and liabilities are agreed. The personal representatives may still hold assets or cash on behalf of the beneficiaries, but they hold them as bare trustees for those beneficiaries. In practice, HMRC will accept whatever date is decided upon by the PRs unless it is clearly artificial and offers a tax advantage. CG30720; TSEM7360
Rates of tax on sources of estate income
Tax on estate income is at standard rates for all sources of income. Regardless of the level of income, personal representatives do not pay tax at the higher rate, nor do they benefit from the lower savings rate.
For years up to 2015/16, dividends from UK companies and similar receipts are taxed at the dividend ordinary rate of 10%, and carry a tax credit of one ninth of the amount of the dividend that meets the tax liability on this income. Dividend tax credits cannot be repaid. From 2016/17 the dividend ordinary rate is 7.5% which has to be paid, since the dividend tax credit has been abolished. ITA 2007, s 14; FA 2016, Sch 1
Foreign dividend income is also taxable at the dividend ordinary rate, and in most cases, up to 2015/16, qualifies for a tax credit of one ninth of the dividend. See the HMRC guidance on completing the Trust and Estate Foreign pages of the Tax Return SA904 notes for details of the exclusions to this general rule. Where foreign dividends have suffered withholding tax, the tax credit is based on the amount of dividend before tax.