Death Administration: Managing an estate after someone has died (Part 2)
Part 1 of this series looked at the role of a personal representative, what makes up an estate and what happens to it after someone dies, and managing the estate’s taxes.
In part 2, we look at the sale of property and assets, reporting to HMRC, and the distribution of the estate to beneficiaries.
Which taxes might I have to pay on the estate?
Capital Gains Tax may be due if you sell shares, investments or property belonging to the estate where either their values have increased since the date of death, or where their values have increased since they were valued for Inheritance Tax.
Capital Gains Tax is not paid on assets or property transferred directly to a beneficiary, only on assets sold.
You may also need to pay Income Tax if any assets continue to generate income for the estate after the date of death, such as rental income from a property or profits, or dividend payments. Income Tax is paid on the full amount of income received from the date of death until the date that all assets are distributed or sold.
What do I need to report to HMRC?
The information you need to supply to HMRC depends on the estate’s value, whether any income was generated, and whether any taxes are due.
- If an estate’s income from any source is £500 or less, you do not need to report the estate to HMRC.
- If the estate’s income is over £500, all income must be reported to HMRC.
- If the estate’s only income up to 5th April 2024 was bank account interest, and if the total tax due from that interest is £100 or less, you don’t need to report to HMRC.
- The estate must be reported to HMRC and tax paid if it received any other income up to 5th April 2024, or where bank account interest was over £100.
Tax on simple estates
If the estate is a “simple” estate, you can write to HMRC under what’s known as an “informal arrangement”. HMRC will then advise how to pay any taxes owed. An estate is classed as a “simple” estate if:
- It is valued at less than £2.5million at the date of death
- It has a total Income Tax and Capital Gains Tax liability of under £10,000, and
- You sell less than £500,000 worth of assets in a tax year during your administration of the estate
HMRC specifies the information you should send, which includes an annual breakdown of income and capital gains during your administration period.
Tax on complex estates
For other estates which do not qualify as a simple estate – classed as “complex” estates – you should register online and submit a Self Assessment tax return for the estate.
Tax on estates, especially those that may be valuable or comprising assets such as stocks and shares, can be complex. Professional advice from probate specialists helps you to navigate your personal representative role, ensuring you comply with HMRC’s requirements to properly manage and close the estate.
When should money be distributed to beneficiaries?
You’re in a position to distribute the remainder of the estate after debts and taxes owed by the estate have been paid. You should distribute in line with wishes expressed in the Will, or if there is no Will in line with intestacy laws.
If you have passed on a property to a beneficiary, make sure that the transfer is registered and the property’s title register updated with HM Land Registry.
How do I close the estate?
Once all debts and taxes are paid, and the estate distributed, you should prepare final estate accounts, to be signed by you and the beneficiaries.
Your final accounts will include documents that show how property, money and assets have been distributed, such as HMRC receipts, receipts for debts paid and confirmation from beneficiaries of monies received.
A Will makes things easier for those close to you
A Will makes life easier for those you leave behind.
Not only will you have protected their interests, particularly if you live with a partner or where you have dependents, but by making some difficult decisions for them – such as setting out what is to happen to your estate after you die, who is to manage your estate and what is to happen if any executors die before you – you’re helping them through what is likely to be a challenging time.
This article has been prepared by Adroit Legal Services and is not intended to constitute legal advice.
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