TSEM7413 - Deceased persons: administration periods: agreeing the tax liability

General

If an estate has no chargeable income and no chargeable gains then there is no need to notify HMRC, either formally via the Trust Registration Service and Self-Assessment, or under informal procedures. As long as, there are no claims to reliefs or elections.

Finalising the tax liability for most estates will be fairly straightforward. At the end, or towards the end, of the administration period a computation of the tax liability should be provided to HMRC by the agent or personal representative for agreement.

Only one payment should be made to cover the liability of the whole of the administration period, even if the administration period spans more than one tax year.

However, see TSEM7376, for cases that should not be dealt with informally.

When an estate does not need to report

Up to 5 April 2024, if the only income the estate received during the administration period was from bank account interest and that was less than £500, there is no requirement to report the estate income to HMRC. 

From 6 April 2024, estates with income of all types up to £500 will not pay income tax on that income as it arises. Where income exceeds that amount, tax will be payable on the full amount. 

The £500 tax-free amount will apply: 

  • for every tax year of administration, but unused amounts do not roll over to subsequent years when reporting under informal procedures. 

  • to all types of income, after taking off ISA income which continues to be exempt after a person has died until closure or up to 3 years following the death. 

Income tax

Income is charged to tax at the rate appropriate to the nature of the income received, for example.

  • dividends are chargeable at 8.75%  
  • investment income (bank, building society interest etc.) is chargeable at 20%
  • other income such as rents, or business profits are chargeable at the basic rate.

The starting and higher rates do not apply to personal representatives in the same way as they do for individuals. Personal representatives do not get personal allowances.

The rules relating to Individual Savings Accounts,(ISAs) held by the deceased can be found here Inheriting ISA from spouse or civil partner.

This allows ISAs to be regarded as a continuing account of a deceased investor. No money can be paid into it from this point, but it will continue to benefit from the tax advantages of an ISA, any growth will remain tax free. Its status as a continuing ISA lasts until either the administration of the estate is complete, the ISA is closed, or three years have passed since death-whichever is sooner. There are different rules in place for years prior to 5th April 2018.

Capital gains tax

CGT liability can be accounted for informally where the proceeds of sale of assets from the estate, are less than £500,000 in any one tax year and the total tax due, income tax and capital gains tax, is less than £10,000. 

Any sale of residential property which results in a capital gains tax charge, must be reported and the tax paid to HMRC within 60 days of completion of sale. Report and pay capital gains tax.

One of the main aspects for HMRC to consider is the date of death value of the asset(s) sold. If the estate paid Inheritance Tax (IHT), HMRC may have agreed the date of death value, and this can be accepted for CGT purposes.

If the estate has not paid IHT, or the particular asset was not chargeable to IHT, it will be necessary HMRC to consider the accuracy of the date of death value returned in the computation.

Further instructions on the date of death valuation can be found in the Capital Gains Manual at CG32210 onwards.