other tax

Question 1

what will be considered for income tax?

Answer 1

• The PRs will need to account for:
• untaxed income due and paid before death
• some income paid after death which relates to a period before death. E.g.
• Rent due on properties the deceased let, but which had not been paid
• Final dividends declared before death but not paid.

No date apportionment is needed for bank interest
1) Bank interest paid before death is taxed as the deceased’s.
2) Bank interest paid after death is taxed as the PRs’ (even if part of it relates to a period prior to death)

Question 2

Deceased’s gains- CGT

Answer 2

• To work out whether the deceased had any outstanding CGT liability on the date they died the PRs will need to consider the disposals made by the deceased before they died.

-These matters relate to assets that the deceased no longer owned on the date they died.

• When calculating the CGT due PRs should utilise the deceased’s tax-free allowances and pay tax at the rates applicable to the deceased.

Death is not a disposal for CGT purposes and does not give rise to a CGT liability:
- Any asset that increased in value during the deceased’s lifetime will not be taxed as CGT when deceased dies (base cost of assets in the estate is ‘up-lifted’ to the date of death value)
- PRs must only pay CGT that the deceased was supposed to pay but did not

Question 3

Estate income

Answer 3

• PRs may be liable to pay IT if the estate assets generate income in the hands of the PRs – i.e., income arises between the date of death and the date the assets are distributed.
• PRs pay IT at the basic rate (the % will depend on the type of income).
• PRs are not entitled to claim an income tax personal allowance.
• Income generated by the assets after they have been distributed to beneficiaries is taxed as the beneficiary’s 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).
• If the only source of income is savings interest of less than £500 and, therefore, the tax due would be less than £100, HMRC do not require any reporting of estate income.
• PRs give a Form R185 to beneficiaries when the estate income is distributed. R185 records the IT paid by PRs in respect of the income a beneficiary receives

Question 4

Estate gains- CGT

Answer 4

• PRs are potentially liable to CGT if they make a disposal / sale of estate assets during the administration period.
• If assets have increased in value since the date of death, there will be a gain when they are sold. If the amount of the gain is greater than the tax-free allowance PRs will pay CGT. PRs are entitled to claim the same tax-free allowance as an individuals (unlike IT).
• If assets have fallen in value since the date of death, there will be a loss. The amount of the loss can be off set against other gains made during the administration.
• It is important to appreciate that only post-death gains are chargeable.

o Gains made by the deceased during their lifetime in relation to assets which they still own at the date of death i.e. increases in value from the date they acquired an asset and the date of death, are not taxed. When a person dies these lifetime gains are ignored.

• The value of estate assets for CGT purposes is re-set (re-based) to their date of death value for future CGT purposes.
• Chattel exemption: in most cases, 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

Question 5

Is CGT charged when an asset is transferred to a B? what value is used for CGT purposes?

Answer 5

• PRs acquire asset at probate value (market value at date of death)
• The subsequent transfer to B is not a disposal so no CGT payable

-The beneficiary acquires the asset at probate value not the value at date of transfer – for CGT purposes