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Q: My client who was a director and shareholder in the company, had lent money to this company on which he charged interest that is credited to his Directors loan account every 30th April. My client passed away on 8th March 2024 and the payment of interest was made to personal representatives on 30th April 2024. Do we need to split the interest – up to 8 March 2024 to go on the deceased return and the rest to go on estate tax return?

A. Bank, building society and other types of interest are taxable when paid to the recipient. The amount of interest earned is not apportioned over the period to which it relates. So if an annual interest payment is received after the date of death, no part of it is taxable on the deceased, but all of it is taxable on the personal representatives.

When interest is recognised for inheritance tax (IHT) is different to income tax.  IHT requires that interest accrued up to the date of death is included in the value of the estate at death.

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