801 Absolute interest in residue

Summary

This section sets out the procedure for taxing beneficiaries who have an absolute interest in the residue of a deceased person’s estate. Effectively, such a beneficiary is taxable on his/her share of the residuary estate income for each of the tax years in the administration period by reference to the income arising from the date of death onwards. However, no assessment can be made on such a person before the end of the administration period unless and to the extent that sums have been paid on account of his/her absolute interest. At the end of the administration period, he/she is assessed on any balance of the residuary estate income not previously assessed. Section 802 contains provisions supplementary to this section.

It should be noted that, where an estate which is small and is a straightforward one (for example, only one or two residuary beneficiaries with no annuitants, life tenants or other persons with an entitlement to any of the income of the estate) the inspector may adapt an approach simpler to that provided for in this section and tax the residuary beneficiary directly on all the income of the estate received from death onwards. In such cases no assessments are made on the personal representative and the beneficiary is taxed each year as if he/she had received the estate income from its various sources directly himself or herself.

Details

(1) This section applies to a person who has an absolute interest in the residue of a deceased person’s estate during the administration period.

(2) The “residuary income” of the beneficiary is calculated for each year of assessment (or part thereof) and is the beneficiary’s share of the residuary income of the estate during which the administration was ongoing and the beneficiary had an absolute interest – refer to section 802.

(3) Any sum (this could include the value of any asset transferred) paid to a beneficiary during the administration period in respect of his/her absolute interest in the residue (that is, a payment on account), is treated as paid to that person as income of the beneficiary for the tax year in which the payment was made and in the case of an Irish estate is deemed to have been paid net of tax.

(4) In the case of an Irish estate, each sum treated as paid to the beneficiary as income is deemed to represent a gross amount of income equal to the amount received grossed up at the standard rate of income tax for the tax year to which the sum received is attributable.

(5) When the administration period is complete, any interim payments made to a beneficiary are aggregated with the final payment. In the case of an Irish estate, any tax adjustments are made for the whole of the administration period so that the beneficiary is taxed for each tax year as if his/her residuary income for each such year had actually been paid as taxed income for that year.

(6) In the case of a foreign estate, each sum treated as paid as income is deemed to be income chargeable to tax under Case III, Schedule D (that is, as if it were foreign source income).

(7) Where a beneficiary has been assessed to income tax on income from a foreign estate and some of that income had already borne Irish tax, the amount of income chargeable on the beneficiary is reduced in the same proportion as the amount of the income of the estate which has borne Irish tax bears to the total income of the estate.

(8) Where a reduction of income has been made under subsection (7), the amount of the reduction is grossed up at the standard rate of income tax when computing the beneficiary’s total income.

(9) For the purposes of corporation tax, the residuary income of a company is computed initially to the tax year and then apportioned to the company accounting period(s) comprised within the tax year.

Relevant Date: Finance Act 2021