Executors/PRs – can the estate you’re dealing with follow the informal procedure?

An estate will qualify if:

• the total Income Tax and Capital Gains Tax due for the administration period was no more than £10,000
• the estate was worth no more than £2.5million at the date of death
• the proceeds of assets sold in any one year are no more than £500,000

If the estate meets the criteria at the end of the administration period using the informal procedure, by writing to HMRC advising them of the tax due and making payment at the same time  , enables you reduce the administration costs and can make your role as PR less onerous. 

Where the above criteria aren’t met, the estate is considered ‘complex’ and, if there’s a tax liability, you'll need to register the estate on HMRC’s Trust Registration Service (TRS) to obtain a Unique Taxpayer Reference (UTR) Number. You’ll then need to submit estate tax returns for the period from the date of death to 5 April  and subsequent years, until the tax year in which the administration period comes to an end. Estate tax return are due by the usual deadline of 31 January following the end of tax year. 

What if a residential property is sold?

What should be a relatively straightforward and cost-effective method of administering an estate could turn out to be anything but, where UK residential property is sold.  

In some instances, the estate may meet the criteria for the informal basis in the earlier years, and it might not be until assets, such as a residential property, are sold only to find the value has increased and the proceeds are over £500,000. In this case, not only is a tax return required for the year of disposal, but also the earlier years. In such cases, HMRC may impose penalties for failure to submit the returns and pay the tax due for earlier years on time as well as charge interest on the overdue tax.

Even when using the informal procedure, the 60-day CGT reporting requirements are the same as those for a complex estate. Where an estate which qualifies for the informal procedure sells a UK residential property, any gain above any remaining available annual CGT exemption (the annual CGT exemption being £12,300 for the year ended 5 April 2023, reducing to £6,000 for the year ended 5 April 2024, dropping to £3,000 for the year ended 5 April 2025), where CGT is due, HMRC requires PRs to report the sale on the CGT property disposals online service and pay the CGT within 60 days. You may not have to report a loss or gain that’s within the available annual CGT exemption but beware, because estates are only entitled to an annual CGT exemption in the year of death and the following two tax years. Also, often when dealing with the estate of a foreign individual, there could be a requirement to submit a 60-day CGT return even if there is no CGT liability. 

Where the administration period of the estate ends within 60 days of the sale of residential property, HMRC make an exception to using their online service by allowing PRs to report the sale by letter (i.e. the simplified informal procedure set out above). 

According to HMRC, an estate does not need to register on the TRS to use the CGT property disposals online service, nor does the estate need a UTR number. This means that where there is a 60-day reporting requirement you may need to create an account in your own name to report the estate’s gain together with any gains you make in a personal capacity. 

Rather than selling the residential property and having to report the estate gains and pay the CGT to HMRC from the assets of the estate, you may want to considering distributing the property to the beneficiaries before the sale takes place. It would mean that the beneficiaries would be responsible for their own 60-day CGT returns, if necessary, and could also reduce the amount of CGT payable because of the sale. 

How we can help

Our specialists are able to advise on whether an informal procedure can be used as well as assist in the drafting of the letter to HMRC. We can also support you in preparing tax returns for the estate where complex. For those with residential property, we assist you to determine if it would be beneficial for PRs to distribute residential property to beneficiaries before it’s sold or assist with 60-day Capital Gains Tax reporting, in addition to providing tax services for simple or complex estates. We are also able to assist with the Inheritance Tax reporting for the estate and obtaining the grant of probate.