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Registering a deceased’s Estate for Tax

Friday October 2019

Tax obligations do not cease on death, the executors of the deceased’s estate have to complete the final tax return to the date of death, and deal with the IHT returns and payment.

Where the estate is extensive or there are competing claims under the will it can take a significant period to transfer all the assets to the beneficiaries. In such cases the estate may generate taxable income during the period of administration. This leads to the dilemma of whether to register the estate for self assessment (SA) in order to pay that tax.

HMRC doesn’t want lots of deceased estates registering for SA, as in most cases there is very little tax to pay, and there will be no ongoing liability once the estate is distributed. HMRC has recently clarified its guidance on when an estate must register for SA, and the rules can be summarised as follows:

  • Where the only income is interest and the tax due is less than £100 – don’t report this to HMRC at all.
  • If the tax due is more than £100 but less than £10,000 for a year, write to HMRC who will reply with a payslip with which to pay the tax (see informal payment arrangements).
  • Where the probate value of the estate is more than £2.5m and the total tax due exceeds £10,000, or the assets sold in one year exceed £500,000, the estate should register with HMRC for SA.

If the estate does need to register for SA this should be done by 5 October after the end of the tax year in which  the estate starts to receive income  or has chargeable gains on which tax  is payable.

You can see when to register a deceased estate for self assessment at tinyurl.com/TX-RegClientEst

You can find out about informal payment arrangements at tinyurl.com/TX-InfPayArr

From the weekly Tax Tips published by the Tax Advice Network

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