WAE 12 - Income Tax, CGT, distribution and estate accounts Flashcards
What are PRs responsible for regarding tax in administration?
Finalising the deceased’s IT/CGT for year of death, and paying IT/CGT during the administration period.
Who pays the deceased’s outstanding tax liabilities or receives refunds?
PRs pay liabilities and claim refunds; liabilities are deductible for IHT, refunds are included as estate assets.
Is death treated as a disposal for CGT?
No. On death, assets are revalued (tax-free uplift) to probate value—wiping out lifetime gains.
How is pre-death income treated for tax purposes?
Taxed as deceased’s income (e.g. rent, dividends declared).
How is post-death income treated for tax purposes?
Taxed as PRs’ income (at basic rate, no allowance).
When is a tax return (Form R185) used?
When distributing income to beneficiaries, showing tax paid for refunds or top-up tax.
If PRs sell an asset for £100,000, and probate value was £80,000, what is taxed?
The £20,000 gain is taxed as the PRs’ gain.
If the deceased acquired an asset for £50,000, and it’s worth £80,000 at death, is the £30,000 taxed?
No—gains accrued during lifetime are wiped by the probate value uplift.
Do PRs get an income tax allowance?
No, but they do get a CGT allowance.
Can PRs use main residence relief?
No. Beneficiaries may be able to, so it may be more efficient to transfer property to them before sale.
Who is taxed if a PR sells an inherited asset during administration?
The PRs. Gain = sale proceeds – probate value.
If a beneficiary sells an asset after receiving it, who is taxed?
They are taxed on gains from probate value to sale price.
What are interim distributions?
Partial payments to residuary beneficiaries before final accounts are settled.
How are legacies distributed?
- Chattels – by delivery
- Cash – by cheque/transfer
- Shares – stock transfer form
- Land – by assent (Form AS1)
Who bears costs of delivery and upkeep of legacies?
Specific beneficiaries, unless will says otherwise (e.g., gift ‘free of expenses’).
What is the order of priority for legacies?
- Specific gifts
- General gifts (includes pecuniary)
- Residuary estate
What is the structure of estate accounts?
- Capital Account: Assets/liabilities incl. IHT/legal fees
- Income Account: Estate income and income tax paid
- Distribution Account: Beneficiaries’ shares and interim distributions
Who must sign receipts?
Residuary beneficiaries. Minors = guardian/trustees. 16/17-year-olds if will allows or through court payment.
