Income tax and CGT Flashcards
What is the responsibility of PRs regarding the deceased’s IT and CGT position?
To finalise the deceased’s IT and CGT position for the tax year of death and pay IT and CGT due during the administration period
What tax return must be submitted for the deceased?
Tax return for the period 6 April to date of death - this is an estate expense
How is the deceased’s income accounted for?
use the deceased’s tax free allowance and pay the rates applicable to the deceased
Account for
- untaxed income due and paid before death
- some income paid after death which related to the period before death (e.g rent due on properties, NOT bank income)
What must be considered regarding gains made by the deceased?
Disposals made by the deceased before they died. The deceased’s tax free allowance can be used.
Does death constitute a disposal for CGT purposes?
No, death is not a disposal for CGT purposes and does not give rise to a CGT liability
What happens to the base cost of assets in the estate upon death?
The base cost of assets in the estate is uplifted to the date of death value
What is the liability of PRs regarding estate income?
PRs may be liable to pay Income Tax (IT) if the estate assets generate income in the hands of the PR.
What types of income may an estate receive?
The estate may receive interest, dividends, and rents.
At what rate do PRs pay Income Tax?
PRs pay IT at the basic rate and are not entitled to claim an income tax personal allowance.
How is Income Tax collected on estate income?
IT will have been collected at source where this income is paid net (e.g. dividends) or paid by PRs for income paid gross (e.g. rent from estate properties).
What is the reporting requirement for savings interest under £500?
If the only source of income is savings interest of less than £500 and therefore tax due would be less than £100, HMRC do not require any reporting of estate income.
What is Form R185?
Form R185 is given to beneficiaries when the estate income is distributed and records IT paid by the PRs in respect of the income a beneficiary receives.
When are PRs liable to Capital Gains Tax (CGT)?
PRs are liable to CGT if they make a disposal/sale of assets during the administration period if they have increased in value since the date of death.
Can PRs use a tax free allowance when calculating estate gains?
Yes - PRs are allowed to claim the same tax-free allowance as an individual.
What happens if assets have fallen in value?
If assets have fallen in value, they can be set off against other gains when they are made.
When are gains chargeable for PRs?
Only post-death gains are chargeable.
What is the exemption for selling chattels?
PRs can sell chattels without having to worry about CGT because a gain made on the disposal of a tangible moveable asset is exempt from CGT if the disposal is for a consideration of £6,000 or less.
What should PRs consider for tax efficiency when selling assets?
PRs must consider whether it is more tax efficient for them to sell it as part of administration or transfer it to the beneficiary so the beneficiary sells it.
What factors influence whether PRs or beneficiaries should sell assets?
If the beneficiary has no tax-free allowance of their own left to use, or would otherwise pay tax at a higher rate, it is likely better for PRs to sell assets; the same applies vice versa.
Can PRs claim main residence relief?
PRs cannot claim main residence relief.
What should PRs consider if the sale of an asset will generate a loss?
If the sale of an asset will generate a loss, PRs should consider whether the estate or the beneficiary has gains against which to set off the loss.
