From the 6^th April 2024, the income tax reporting by Personal Representatives during a period of estate administration has been amended.

Where Personal Representatives (Executors or Administrators) are administering an estate of someone who has died then they need to make sure that they understand their obligations, and account to HMRC for any income tax and capital gains tax for the period of administration. This is a mandatory requirement and is often overlooked by those administering an estate personally without professional support.

The administration period is the time from the date of death until the date that everything has been paid out or distributed at the end of an estate and may cover more than one tax year.

The Personal Representatives need to consider whether any income received, such as interest on bank accounts between the date of death to closure or dividends on shareholdings, need to be reported and if so, whether reporting should be formal or informal. Estates do not get any personal allowances for income tax and pay tax at the basic rates of 8.75% on dividends and 20% on all other income.

From 6 April 2024 estates have an annual capital gains tax allowance of £3,000 and an ordinary capital gains tax rate of 20% (24% for residential property) It may be possible to appropriate assets prior to a sale to beneficiaries which may reduce any CGT liability and professional advice should be obtained if shares or property have increased in value over £3,000 after the date of death.

The need to report income at all is changing from the 6^th April 2024 and should see more basic estates excluded from the need to report under either method. From 6th April 2024 estates with all types of income up to £500 in every tax year of the administration will not pay income tax and that income does not need to be reported to HM Revenue and Customs. Previously this was limited to bank or building society interest only and caught out a number of estates with very small shareholdings.

During the administration period, ISAs are not subject to income tax or capital gains tax for three years from the date of death or when they are closed, sold or transferred. So, the income and gains from ISAs do not need to be declared or included in the tax-fee amount of £500.

If the estate receives more than £500 of income, then HM Revenue and Customs should agree to deal with the income tax and capital gains tax in the estate informally by letter at the end of the administration period unless the estate is classified as complex (see below) The exception to this is any capital gains on the sale of a property which must be reported within 60 days of sale.

If an estate is a  ‘Complex Estates’ then the estate must be formally registered or income tax with HMRC by the Personal Representatives and formal tax return prepared. A ‘Complex Estate’ is  one which:

• (i) has assets of over £2.5 million or
• (ii) where assets are sold in any one tax year of over £500,000 or
• (iii) where the total tax liability (income tax plus capital gains tax) due over the whole administration period is over £10,000.

The registration is done online through HM Revenue and Customs Trust Registration Service and a Unique Taxpayer Reference is sent to the executor in the post. This is different to the Unique Taxpayer Reference that the deceased would have had if they were completing lifetime tax returns.

Dealing with income tax and capital gains tax during an estate administration should not be daunting or complex but Personal representatives do need to know the requirements to deal with tax and keep appropriate records. For further information see https://www.gov.uk/probate-estate/reporting-the-estate

If you are dealing with the estate of someone who has died and would like assistance in the administration itself or advice regarding your role as personal representative then our trusted Estate Administration (Probate) team at Clark Willis Solicitors would be happy to help. Please contact your local Clark Willis Solicitors office, in Darlington or Northallerton (01325 281111 or 01609 765765) or email enquiries@clarkwillis.co.uk.