Estate tax returns and informal procedures

By Tolley

The following Trusts and Inheritance Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Estate tax returns and informal procedures
  • Is a tax return required?
  • Informal procedures
  • The trust and estate tax return

Is a tax return required?

Personal representatives have a duty to report to HMRC any untaxed income received during the period of administration and any capital gains which have arisen in that period on the sale of property forming part of the deceased estate. In accordance with the general rule under TMA 1970, s 7(3), there is no requirement for the personalrepresentatives to notify chargeability where the only income received has been taxed at source or has a tax credit attributed to it (eg bank interest, dividends). In many cases up to the 2015/16 tax year, all of the estate income will have been taxed at source and no return is necessary.

If this is the case, it is advisable when dealing with HMRC to finalise the deceased’s tax affairs, to give notice that no tax liability has arisen or is likely to arise during the period of administration. It is sufficient to confirm that the estate will receive no untaxed income or capital gains, with no further details required. If a tax liability does arise at a later date, it should be reported according to the procedures set out below.

2016/17 onwards

From 6 April 2016, tax is not deducted at source on bank accounts etc, and the dividend tax credit is abolished. It appears that even very small amounts of investment income arising within the estate will have to be reported and tax paid in relation to them. Personal representatives are not entitled to the savings allowance introduced by FA 2016, whereby individuals may receive up to £1,000 of gross interest to be charged at a nil rate nor are they entitled to the dividend nil rate applicable to the first £5,000 of dividend income received by individuals.

HMRC has recognised that the new regime will impose an additional administrative burden on PRs, and

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