Taxes and death – a true cliché
Giles Wilson Solicitors regularly helps clients to obtain a Grant of Probate or Letters of Administration (the latter usually applies when a Will has not been made).
Personal representatives are aware that this can involve a lot of information-gathering to ascertain the probate (date of death) values for completing the required HMRC forms. These forms must be completed regardless of whether there is an inheritance tax liability.
This information ideally ought to include whether there is any income tax liability due at the date of death, although there may also be a refund due to the estate (depending on the date of death). Sometimes, this can take longer to find out because it requires HMRC PAYE correspondence to confirm (though an accountant can also often provide a calculation, which can then be verified with HMRC later).
Tax after death
This is not, sadly, where liability necessarily ends and there is truth in that taxes and death are both certainties. What many Executors fail to realise is that tax does not end on death and the “estate” as an entity in itself is possibly liable for income and capital gains tax.
During the estate’s administration period, which runs from the date of death until the conclusion of the administration (i.e., when all assets have been collected in, liabilities paid and the estate is ready to distribute) there may be income arising. This can come from bank accounts or stocks and shares (whether held individually with Share Registrars or within portfolios).
Unlike individual’s during lifetime, the estate does not have ‘personal allowances’ (clue is in the title!) and therefore, theoretically all income is potentially taxable. I say “potentially” because there are some exceptions to this, where HMRC makes concessions (reviewed each tax year) which means that smaller estates may not need to pay any income tax, provided that certain conditions are met.
Otherwise, the estate will need to pay income tax and this may be by:
1. Filing a full tax return for the estate (SA900), or
2. The informal return process. The conditions for this should be checked, to ensure the estate qualifies for the informal basis.
Additionally, it may be necessary to provide beneficiaries with certificates to confirm the deduction of income tax (this can vary depending on beneficiaries’ circumstances and the question of costs proportionality being taken into account).
This is an often-overlooked duty of a personal representative, who often assume that getting the Grant is the “main” job and thereafter the main focus on getting funds to beneficiaries as soon as possible. However, care needs to be taken to ensure that the income tax (and capital gains tax) position is checked, returns filed, and HMRC’s clearance sought, to properly safeguard the personal representatives and beneficiaries.
A member of your team at Giles Wilson a member of our Private Client Teamwould be happy to advise and guide through this, and other aspects of the post-Grant administration and personal representative duties.