Key Concepts Flashcards
How do PRs deal with any CGT and IT payable on estate’s assets?
1) CGT = if any gain is made on the sale of estate assets:
- the base cost for sale is the probate (market) value of the asset received at the time of death
- PRs pay rate of 20% (28% for residential property) and can deduct costs and AE
- CGT payable out of estate
- NO CGT is paid ono transfer of an asset to a beneficiary. Beneficiary may have to pay CGT is sell an asset they received from the estate and made a gain
2) Income tax = payable on any income received by estate during administration - e.g., rent due on property and dividends
- no income is payable if income earned is less than £100 and only from interest from savings account
- PRs liable for income tax: 7.5% on dividend income; basic rate (20%) on all other income
- relief can be claimed for interest on loans
Is death a disposal for CGT purposes
NO - death does not give rise to CGT liability
What is the Form R185?
PRs give a Form R185 to beneficiaries when estate income is distributed
NCPR 20
Deceased left valid will but no executors are able / willing to act
NCPR 22
Deceased died intestate
What assets does instalment option for payment of IHT apply to?
Instalment option: certain assets may be paid by 1- equal annual instalments
Applies to:
- land and buildings
- company shares/securities giving deceased control
- some unquoted company shares
- farms or interest in farming business
- business or interest in business
- timber
What is the deadline for submitting the account to HMRC?
12 months from end of the month in which death occurred
What is the deadline for paying IHT due?
6 months from end of the month in which death occurred, after which interest becomes payable on unpaid tax
When are PRs liable to pay CGT if they make a disposal/sale of estate assets during administration period?
If assets have increased in value since date of death = gain when they are sold
- if amount is greater than tax-free allowance = pay CGT
What happens to gains made by deceased during their lifetime in relation to assets they still own at date of death?
These are NOT taxed
- only post-death gains are chargeable
Chattel exemption
A gain made on disposal of tangible, moveable asset is exempt from CGT if disposal is for £6,000 or less
Exemptions and reliefs: lifetime only
- annual exemption
- family maintenance exemption
- small gifts exemption
- marriage exemption
- normal expenditure out of income
- taper relief
Exemptions and reliefs: lifetime AND death
- BPR
- APR
PA1A
Deceased did not will a will - NCPR 22 applies
PA1P
Deceased left a valid will - executors act under the will or administrators appointed by NCPR 20
Excepted estate (IHT400 not sent to HMRC)
1) Low value excepted estate = no IHT payable, gross value of estate is below NRB
2) Exempt Excepted Estate = gross value of estate is no more than £3m but no IHT payable because after debts are deducted AND spouse/charity exemptions are applied, value of estate is below NRB
If any of the following apply, the estate cannot be excepted:
- GROB
- Life interest trust worth more than £250k
- Foreign assets worth more than £100,000
- Value of specified transfers exceeds £250k
- Claim for RNRB is made
What assets which fall within the succession estate do not require a grant for PRs to deal with them?
- assets which can be distributed under Administration of Estates Small Payments Act: assets valued up to £5k (national savings; deposit accounts; arrears of salary; pensions for police/fire/air force/army; building society accounts)
- personal household items
- cash
What is a solvent estate?
The assets are sufficient to pay all funeral, testamentary and administration estates, debts and liabilities
What are PRs’ IT and CGT responsibilities?
- Finalise the deceased’s IT and CGT position for the tax year of death
- Pay T and CGT that becomes due during the administration period
Where are tax liabilities payable from?
Tax liabilities are an estate expense and payable from estate assets
What needs to be considered for the deceased’s income?
PRs need to account for:
- untaxed income due and paid before death
- some income paid after death which relates to a period before death (rent due; final dividends)
When would PRs need to pay estate income?
PRs may be liable to pay IT if the estate assets generate income between date of death and date the assets are distributed
Examples:
- interest (bank accounts)
- dividends (shares)
- rent (let properties)
This income is taxed as estate income in hands of PRs and is paid at the basic rate
Are PRs entitled to claim an income tax personal allowance?
NO
When is income generated by assets distributed to beneficiaries taxed as beneficiary’s income?
Income generated by assets AFTER they are distributed to beneficiaries is taxed as beneficiary’s income
What is the total income received required for PRs to report to HMRC or pay income tax on estate income?
More than £500
If total income exceeds £500 = income tax is payable on whole amount
Can PRs claim a tax-free allowance for CGT?
Yes - PRs can claim the same tax free allowance as an individual (unlike T)
What happens if value of asset has fallen?
If assets have fallen in value since date of death there will be a loss - this can be off-set against other gains made during administration
What gains are chargeable?
ONLY post-death gains are chargeable
Transfer to beneficiary of deceased’s asset
The transfer to a beneficiary is NOT a disposal - no chargeable gain occurs
- for CGT purposes, the beneficiary acquires the asset at probate value, not the value at date of transfer
- when a beneficiary sells it, they will be treated as making a gain (if there is a gain) and can use their tax free allowance
Is transferring assets to a beneficiary a CGT disposal?
NO - transferring assets to a beneficiary does not constitute a CGT disposal
How are post death gains taxed?
By PRs = if assets are disposed of by PRs during administration
By beneficiary = if they dispose of an asset after it has been transferred to them
At what value do PRs acquire the estate assets?
PRs acquire estate assets at their market value on the date of death (probate value)
Example:
The deceased acquired an asset when it was worth £10,000. The asset increased in value during the deceased’s lifetime and was worth £40,000 when the deceased died. The PRs needed to sell the asset a few months after the deceased died and have just sold the item for £45,000.
- the value of the gain = £5,000
- PRs are treated as having made a gain equal to the difference in value between the date of death and sale proceeds
When assets are transferred to beneficiaries, what is the effect for PRs?
There is no disposal by the PRs, so they make neither a gain nor a loss
- whereas, the beneficiary is deemed to acquire the asset at probate value
