Chapter 22: Taxation of Estates in Administration Flashcards
What is one of the first things PRs must do in relation to income tax?
Complete and submit the deceased’s income tax return covering the period from 6 April to the date of death
Why must the income tax returns be finalised before the IHT liability can be correctly calculated?
Because any tax owed to HMRC at the point of death is a liability of the estate for IHT purposes
What should be included in the income tax return along with income tax information?
Any capital gains tax due in the year of death is a liability of the estate for IHT purposes + should be included in the return prepared by the PRs
What tax returns must the PRs submit during the period of administration?
Submit tax returns detailing any income and gains accruing to them during the period of administration.
If certain assets within the death estate produce income, the income legally belongs to the PRs until the assets are distributed, so they must pay income tax on it.
When will the PRs have capital gains tax liability?
If the PRs sell any assets and make a profit
What happens re tax returns if the administration period straddles more than 1 tax year?
Returns are required for each separate tax year
When will the PR’s tax returns be due?
Bound by normal self-assessment rules, so returns are filed by 31 January.
Interest + penalty provisions are the same as for individuals.
What may PRs do instead of making annual self-assessment returns?
The PRs may make an informal payment of the total liability for the whole period of administration together with a single income tax + capital gains tax computation
How is non-savings income and interest taxed?
At the basic rate of 20%
How are dividends taxed?
At the dividend ordinary rate of 8.75%
What is a deductible payment against income for the PRs?
If the PRs took out a loan to pay the IHT, interest on the loan is a deductible payment against income
How are PRs deemed to acquire assets of the deceased?
At the date of death, at a base cost equal to their market value at death, or proabte value.
What happens to the probate value of assets if the PRs have made post-mortem relief claims?
IF the value of quoted shares and/or lan has been adjusted for IHT purposes, the new adjusted value will become the capital gains tax base cost
When will the PRs be liable to capital gains tax?
On any gains made by them on disposals (sale of estate assets) during the administration period.
When do PRs receive an annual exempt amount for CGT?
For the year of death + the next 2 tax years only.
The exempt amount is the same as that for individuals (£6,000)
