TAXATION OF ESTATES IN ADMINISTRATION

Question 1

Personal Representatives’ Income Tax

Answer 1

1. One of the PR’s first tasks is to complete and submit the deceased’s income tax return covering the period from** 6 April
   to the date of death**
2. The PRs settle any income tax owed by the deceased for the tax year of death and for any previous years, if necessary.
   Any tax owed to HMRC at the point of death is a liability of the estate for inheritance tax purposes. Therefore, the income tax returns must be finalised before the inheritance tax
   liability can be correctly calculated.
3. 3. PRs 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.

Question 2

Personal Representatives’
Capital Gains Tax

Answer 2

1. Any capital gains tax due in the year of death is a liability of the estate for inheritance tax and should be included in the return prepared by the PRs.
2. If the PRs sell any assets and make a profit, they will have a capital gains tax liability

Question 3

INCOME TAX

Answer 3

1. Non-savings income (trading income, rental profits, employment income, and pension income) and interest are taxed at
   the basic rate of 20%.
2. Dividends are charged at the dividend
   ordinary rate of 8.75%.
3. The personal, personal savings, and
   dividend allowances are not available.
4. Loan Interest
   If the PRs took out a loan to pay the inheritance tax, interest
   on the loan is a deductible payment against income.

Question 4

CAPITAL GAINS TAX

Answer 4

1. PRs are deemed to acquire the assets of the deceased at the date of death, at** a base cost equal to their market value at death,** or probate value.
2. If the PRs have made post-mortem
   relief claims, under which the value of quoted shares and/or land has been adjusted for inheritance tax purposes, the new adjusted value will become the capital gains tax base cost.

Question 5

Disposals

Answer 5

1. The PRs are liable to capital gains tax on any gains made by them on disposals (sale of estate assets) during the administration period. Normal capital gains tax rules apply to calculate the gain. 2. The PRs receive an annual exempt amount
   for the year of death and the next two tax years only. The exempt amount is the same as that for individuals (£6,000 in 2023/24).
2. Capital losses are set against gains in the same
   year, and any excess losses are carried forward.

Question 6

Capital Gains Tax Rates

Answer 6

The capital gains tax rates for PRs are 20% on general gains
and 28% for residential property

Question 6

Distributions to Beneficiaries

Answer 6

1. A distribution of an asset by the PRs to a beneficiary in settlement of a legacy under the will is not treated as a disposal for capital gains tax purposes.
2. If a beneficiary is left an asset under the terms of a will, they are deemed to have acquired
   the asset at the date of death for its probate value. 3. The value of the asset at the time it is distributed is irrelevant.

Question 7

Disposal of Assets

Answer 7

If and when a beneficiary disposes of an asset inherited from the deceased, they will need to consider whether they have a resulting capital gains tax liability. This will require comparing the disposal proceeds with their acquisition cost, which, as explained above, is the probate value.