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Executors – can your estate follow the informal procedure for estate taxes?

Like individuals and trustees, self-assessment rules also apply to personal representatives (PRs). This means if a tax return has been issued or there’s tax to pay (unless it’s on interest and less than £100 each tax year), then a tax return will need to be submitted. 

Last updated: 1 September 2020

Although PRs are aware that inheritance tax forms may need to be prepared when administering an estate, they often overlook the requirement to report income and capital gains tax. Or, they find that it becomes apparent when the estate comes to an end.

Even though under normal circumstances, tax returns would be required, a simplified informal procedure can be adopted instead where an estate is classed as non-complex. In this case, the PRs only need to report income and gains by letter at the end of the administration period under the deceased’s usual tax reference number. The tax is then paid in one sum, and there’s no interest or penalty if paid ‘late’.

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 £2.5 million at the date of death.
  • the proceeds of assets sold in any one year are no more than £500,000.

Where the above criteria isn’t met, the estate is considered ‘complex’ and the PRs will need to register the estate on HMRC’s Trust Registration Service to obtain a Unique Taxpayer Reference Number for the estate. They’ll then need to submit 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.

In some instances an estate may meet the informal estate criteria in the earlier years, and it isn’t until the executors come to sell assets later that they find the value has increased and the proceeds are greater than £500,000. In this case, not only is a tax return required for the year of disposal, but also the earlier years.

We’re able to advise 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.

About the author

Mary Hase

+44 (0)20 7556 1328
hasem@buzzacott.co.uk

Last updated: 1 September 2020

Although PRs are aware that inheritance tax forms may need to be prepared when administering an estate, they often overlook the requirement to report income and capital gains tax. Or, they find that it becomes apparent when the estate comes to an end.

Even though under normal circumstances, tax returns would be required, a simplified informal procedure can be adopted instead where an estate is classed as non-complex. In this case, the PRs only need to report income and gains by letter at the end of the administration period under the deceased’s usual tax reference number. The tax is then paid in one sum, and there’s no interest or penalty if paid ‘late’.

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 £2.5 million at the date of death.
  • the proceeds of assets sold in any one year are no more than £500,000.

Where the above criteria isn’t met, the estate is considered ‘complex’ and the PRs will need to register the estate on HMRC’s Trust Registration Service to obtain a Unique Taxpayer Reference Number for the estate. They’ll then need to submit 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.

In some instances an estate may meet the informal estate criteria in the earlier years, and it isn’t until the executors come to sell assets later that they find the value has increased and the proceeds are greater than £500,000. In this case, not only is a tax return required for the year of disposal, but also the earlier years.

We’re able to advise 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.

Speak to an expert
Speak to an expert

If you would like any advice or assistance on the above, or help with administering an estate, please get in touch with our team of experts. We will be able to address your concerns about dealing with this additional tax burden at a stressful time.

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