Estate Admin: Tax Requirements

The estate administration period refers to the time between a person’s death and the final distribution of their estate to beneficiaries. During this period, any income generated by the estate, such as interest, dividends, or rental income, is subject to Income Tax and potentially Capital Gains Tax (CGT) on a sale of chargeable assets. Understanding how to report and pay these taxes is crucial, and this is where our expert support can make a real difference.

Low-Income Estates

If the estate earns less than £500 in income annually (excluding ISA income), there’s no requirement to report or pay tax. ISA income remains tax-free for up to three years after death or until the ISA is closed.

There are two primary methods for reporting income and gains during the administration period:

• Simple Estates – The Informal Procedure

If the estate meets the following conditions, it qualifies as a “simple” estate:

• • The estate was valued under £2.5 million at the date of death
  • Total Income Tax and CGT liabilities are under £10,000
  • No more than £500,000 worth of assets were sold in any single tax year during the administration period

In these cases, there’s no need to register the estate as taxable. Instead, executors or personal representatives can report income and gains by letter to HMRC’s Self Assessment department. Tax is only paid once HMRC issues a payment request, and there’s no need to file annual tax returns. The informal procedure allows all income and gains to be reported once the administration period comes to an end.

However, the estate may still need be registered as a non-taxable estate on HMRC’s Trust Registration Service. Once registered, HMRC will issue a Unique Reference Number (URN) for future correspondence.

We assist clients in determining whether their estate qualifies for the informal procedure and take care of the reporting and calculations, making the process as simple as possible.

• Complex Estates – Full Tax Return Required

If the estate doesn’t meet the criteria above, it must be registered as taxable. This involves:

• • Registering the estate through HMRC’s estate register
  • Receiving a Unique Taxpayer Reference (UTR)
  • Filing annual tax returns until the administration period ends

We assist clients with all necessary reporting. Our goal is to ensure everything is completed accurately and on time.

In some cases, an estate may start as “simple” but become “complex” later, for example, if a property is sold for more than £500,000 near the end of the administration period. We help clients manage these changes, adjusting the reporting approach as needed.

Key Tax Considerations

Executors don’t receive a personal allowance, so all estate income is taxable at the basic rate unless specifically exempt. When income is passed to beneficiaries, it may be taxed at their personal rate depending on their overall income. Higher-rate taxpayers may owe additional tax, while basic-rate or non-taxpayers may be eligible for a refund.

For Capital Gains Tax, executors are entitled to the full CGT annual exemption from the date of death to the following 5 April, and for the next two tax years. In some cases, if a beneficiary lived in a property during the administration period, Private Residence Relief may apply.

How We Can Help

Dealing with estate taxation can be complex and time-consuming. We offer comprehensive support, from identifying the correct reporting method to registering the estate, correspondence with HMRC, and preparing any necessary tax returns. Whether your estate is simple or complex, we ensure everything is dealt with properly and efficiently.

Click here to read our informative blog post if you are interested in our Probate services. 

Get In Touch

Please do get in touch with your local Whitings LLP office should you require any assistance with Probate or Estate Administration.

Disclaimer - All information in this post was correct at time of writing.