At PD Tax we recognise that the death of an individual is a difficult time. However, tax obligations, such as the requirement to file tax returns and pay the tax due on behalf of the deceased, do not cease upon death.
The taxes typically involved are inheritance tax, income tax, and capital gains tax, and it is the personal representatives’ responsibility to ensure that the returns have been submitted and the correct tax has been paid.
From a tax perspective, the personal representatives may need to:
- Calculate and pay any inheritance tax due on the estate
- Prepare estate accounts
- Submit inheritance tax returns as part of the probate process
- Ensure that the deceased’s tax affairs are up to date for the period up to the date of death
- Register the estate with HMRC, complete tax returns, and pay income tax and capital gains tax for the period of administration
- Provide information to the beneficiaries regarding the amount of taxable income distributed to them by the estate (typically this is done using form R185).
Personal representatives can become personally liable for tax liabilities where the assets have already been distributed to beneficiaries (see Graham Usher & Martin Perkins Executors of Terence Guy Deceased v HMRC). It is therefore important that personal representatives seek professional tax advice when faced with complex or unfamiliar issues.
We have recently been engaged by the Executors of a deceased individual’s estate.
Much of the individual’s wealth was held in a property company, and therefore the shares in that company generated a significant Inheritance Tax Liability.
We advised the Executors on how to restructure the estate so that they have a cash redeemable asset secured to the assets of the company, which can be drawn down from the company over a period to meet the Inheritance Tax Instalments as they fall due.
This was important for the Executors of the estate as it is in effect their personal responsibility to ensure that the liabilities of the estate are met out of the assets.
The restructuring also allowed the executors to access the capital gains uplift in the base cost of the property company shares on death, in order to mitigate tax in obtaining money from the company to pay their liabilities. Clearance was obtained from HMRC in this regard.