Brenda Smyth of AMD Solicitors considers the tax implications when dealing with the administration of an estate
When applying for a Grant of Probate, the Personal Representatives of an estate must complete and submit an Inheritance Tax form giving details of all assets and liabilities of an estate. This may need to include details of lifetime gifts made by the deceased or any interests in trusts which the deceased may have had. Personal Representatives have a duty to make full enquiries to obtain the necessary information to complete the form correctly and failure to do so may result in interest having to be paid on tax paid late or even in tax penalties.
Even when the Personal Representatives correctly ascertain and disclose assets and liabilities in the estate, mistakes can still be made, such as not claiming all allowances and reliefs available to reduce the value of the estate for Inheritance Tax purposes.
Consideration of the Inheritance Tax liability does not end once the Grant of Probate has been issued. If further assets or liabilities come to light or there is any other change in the value of the estate for Inheritance Tax purposes, these may need to be disclosed to HM Revenue and Customs and additional tax paid or a refund claimed. There may also be additional reliefs to consider, for example, if land or shares are sold for less than the probate values.
Inheritance Tax is not the only tax to consider when administering an estate. If an asset is sold during the course of the administration of an estate for more than the value at the date of death, there may be a Capital Gains Tax liability on the Personal Representatives. Where the liability is likely to exceed the Personal Representatives’ annual exemption, with careful planning and depending on the circumstances, it may be possible to mitigate or even eliminate this liability.
Any income received by the Personal Representatives in the course of the administration is subject to Income Tax and must be disclosed to HM Revenue and Customs by the Personal Representatives. Unlike individuals, Personal Representatives do not qualify for the Personal Savings Allowance or Dividend Allowance. At the end of the administration period, the Personal Representatives must provide the beneficiaries with Certificates of Tax Deduction. These may enable any beneficiary who is not a tax payer to reclaim the Income Tax paid or for higher rate tax payers are evidence that tax has been paid at the basic rate.
Sometimes beneficiaries may decide to vary the terms of the distribution of the estate and the tax implications of this need to be considered. It may be beneficial for the variation to be done by means of a Deed of Variation within two years of the deceased’s death. In some circumstances, this may result in a tax saving or may avoid adverse tax consequences for the person giving up his or her right to benefit from the estate.
For further advice on the administration of estates, Wills, Lasting Powers of Attorney and other private client matters, contact Brenda Smyth or one of her colleagues at AMD Solicitors 100 Henleaze Road, Bristol BS9 4JZ Phone 0117 962 1205, email email@example.com or visit our website www.amdsolicitors.com