When does the income tax libaility end for an executor? Would it be the date of final distribution to residuary beneficiaries or an earlier date? I am an executor of an estate split equally between residuary beneficiaies. The estate is a simple estate amounting to one savings account (there was no IHT) which I closed some 2 years ago and since closure the cash from it has been earning interest in my client account.
I have spent the last 2 years trying to trace the residuary beneficiaries which I have now done. If I determined that my income tax liability ended on closure of this saving account (or earlier) then the interest during that period would have been less than £500 and so be non reportable and no tax would be due from the executor. If however I determined that my income tax liability ended on the date of final distribution (i.e 2 years after closure of this account) then the income would exceed £500 per tax year and be reportable amd I would need to pay tax. I guess I don’t understand how to judge when the administration period has ended for income tax purposes… can anyone help?
It’s when the residuary estate has been ascertained, which may be before distribution. From then you are holding the estate as Bare Trustee for the benefs.
My view is you should declare the interest to HMRC and pay the tax then provide the R185 to the beneficiaries accordingly to remove any uncertainty you have. You should be able to do this by letter with the relevant figures i.e. informally.
Thanks v much Karl. As I see it determing when the estate as has been ascertained is not an exact science - but in this situation I’d say it would likely be sooner (perhaps shortly after his death) rather than later (i.e prior to final distribution). I can see declaring the interest/issuing R185s for the period up to more or less a final distrubution would better protect me from any claim from HMRC - but perhaps at the risk of the beneficiaries moaning that I had incurred uncessary costs in undertaking the associated work.
The test is whether it can be said that a given asset or income from it will definitely not be needed for administration i.e. to meet liabilities because these are already paid or will be safely provided for from other assets. This test applies asset by asset and not as regards the whole corpus of the estate. It may indeed be clear very early on that such is the amount of liabilities (ascertained with acceptable certainty and with due regard to prospective liquidity) as will leave the executor free immediately to distribute some assets in the estate as per the Will
Speaking with experience, I’ve never known beneficiaries query costs for paying estate admin income tax and preparing R185s…which could have been done in the time taken to post about it on TDF…
For HMRC’s view on when the period of admin ends see: CG30700 et seq. This is written with CGT in mind but HMRC but parts will be relevant for IT.
In TSEM3760 HMRC officers are told “[y]ou should normally accept that the administration ended on the date the personal representatives tell you it did.”
Duncan is right but the use of the word “normally” is HMRC’s get out. See Davies v CIR [2011] UKSC 47 especially para 70 quoting Lord Hoffmann. What they mean is that if a different date is strongly arguable in law AND it suits them to run that argument they will do so. Indeed their self-justification will be that they have no choice in the matter because it is their duty so to do. It may hurt them more than the taxpayer (this is never true) and possibly crocodile tears will be copiously shed (not very often).
You can rely on the golden metwand of the law. Beware of the promises and assurances of an intellectually dishonest snake oil salesman who not only has powers of persuasion but also powers of investigation, search and seizure, assessment and collection, and a quiver of dirty tricks.