Pope - UK Upper Tribunal finds that next of kin are not taxable on interest they receive in respect of an unadministered estate

The son of the taxpayers, who was the beneficiary of his own life insurance policy, was abducted by Angolan rebels in 1998 and later presumed dead.  The taxpayers received the insurance proceeds plus interest in 2002, which was three years before his estate went into administration.  The Upper Tribunal found that the interest was not income to the taxpayers because at the time of receipt all beneficial interests in the unadministered estate were held in suspense - and, in fact, until the administration was completed, they did not have any proprietary interest in any particular asset of the unadministered estate.

The UK provision in issue specified that tax "shall be charged on and paid by the persons receiving or entitled to the income."  The Upper Tribunal found that the taxpayers were not "entitled to" the interest, but did not explicitly state that they did not "receive" the interest.  An implicit finding appears to be that, because the interest was potential income of the unadministered estate, the taxpayers should not also be regarded as the "persons receiving or entitled to" that income.

Similar reasoning might apply in Canada.  Ss. 104(13) and (24) provide that an amount of estate (or other trust) income is not included in a beneficiary's income until the beneficiary is entitled to enforce its payment, or it is paid, by the estate.

Scott Armstrong.  Summaries of Pope & Ors v. R & C Commrs., [2012] UKUT 206 (Tax and Chancery Chamber) under s. 104(13) and s. 12(1)(c).