Distributions from estates in administration – completing self assessment tax returns and R40s

HMRC has provided the following clarification on how to report distributions from estates in administration on self assessment tax returns and R40 forms. 

When income from an estate in administration is paid out to beneficiaries the executors need to tell the beneficiaries:

  • How much income they are entitled to, and
  • How much of the entitlement is made up of dividends received before and after 6 April 2016, and
  • Whether there is any untaxed bank interest included in their entitlement

Untaxed bank interest

The R185 statement of estate income is not required where the only income is untaxed bank interest of less than £100 so in this situation the executors have to provide the beneficiaries with a breakdown of any untaxed bank interest on a separate sheet and the beneficiaries should declare the bank interest received in box 2 on page TR3 of the SA100.

The R185 has a separate box for the pre April 2016 dividends, box 20, but the new instructions from HMRC appear to advocate ignoring that box. The instructions on the R185 for box 20 is to simply enter these dividends into the white space.

If the beneficiary is a taxpayer in self assessment, they will have to transfer the details in box 18 on the R185 estate income into box 18 on their SA107. They will then need to note in box 25, the white space, of the SA107 how much dividend income was received by the estate before 6 April 2016 but not paid out until after 6 April 2016. They need to do this so that the pre April 2016 tax credit can be taken into account and is not repaid.

By entering all the dividends onto the self assessment return then, provided the beneficiary is not in a tax repayment situation, it seems that the tax will be correctly calculated. If the beneficiary is in a repayment situation it may be necessary to do a manual calculation to ensure the non repayable dividend tax credit is excluded from any repayment.

If the beneficiary is a non-taxpayer, the beneficiary will instead have to transfer the details in box 18 on the R185 statement of estate income into box 4.11 or 6.1 on the R40 depending on whether the dividends were UK or foreign dividends. They need to do this because individuals are entitled to a dividend allowance and will be entitled to a tax rebate or credit against their tax charge of the tax paid on dividends received by the estate after 6 April 2016. There is no additional information box on the R40 so the beneficiary will have to tell HMRC on a separate sheet which dividends were received after 6 April 2016 so that the refund can be calculated.