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Registration of Estates – Income Tax obligations for Personal Representatives
Personal Representatives (‘PR’s’) dealing with estates need to be aware of a number of key issues in relation to Income Tax when dealing with the administration:
1. Registration – where an estate is regarded as ‘complex’ then PR’s must register the estate on the Trusts Register, providing details of the estate, deceased and PR’s. A full self-assessment tax return will usually then be required for every tax year of administration, rather than following the ‘informal procedure’.
A ‘complex estate’ is one where:
– the tax liability for the whole of the administration period is in excess of £10,000; or
– the estate has a value at the date of death in excess of £2.5m; or
– the proceeds of assets sold by the personal representative in any one year exceeds £250,000 for deaths before 6th April 2016; or
– the proceeds of assets sold by the personal representative in any one year exceeds £500,000 for deaths on or after 6th April 2016
2. ‘Informal Procedure’ – where an estate does not fall within the definition of a ‘complex estate’ (above), Informal Payment Arrangements should be available to the PR’s, allowing them to provide HMRC with a calculation of the amount of tax due. HMRC will then provide a payment slip with a reference number, for this payment only, for the PR to then make a one-off informal payment of the total tax liability for the whole period of administering the deceased’s estate, provided certain conditions are met.
All informal payments made for the administration period should include the reference number provided by HMRC, and any cheques should include the following information on the reverse:
– name of the deceased
– last private address of the deceased
– the deceased’s National Insurance number of Self-assessment UTR or reference which has been provided by HMRC for this payment
– the reason for this payment indicating the Administration Period
A covering letter with the cheque for payment should be sent to HMRC.
The informal payment procedures can only be used once, and only when the administration period has ended,
3. PR’s should be wary of extended administration periods where multiple returns may be required, as well as the situation in which an estate does not initially appear to meet the criteriae for a complex estate, but gradually slips into this category due to increased tax income or an increase in the value of property/assets sold in any one tax year. Penalties may apply in retrospect.
We are very happy to assist with all areas of estate administration on behalf of, or in conjunction with PR’s. Please contact Lucy Thomas at our Cockfosters office or Judith Bleetman at our East Barnet office for more information on our probate service.