Registering complex estate due to house sale over £500k

Trusts Discussion
1

I have an estate which literally compromised of 1 bank account with less than £1000 in it at the time of death and a house which has just sold for £650k.

Am I correct that because the house has sold for over £500k I need to register the estate as a complex estate HMRC?

There is no CGT liability as the house has sold for probate valuation and no income has come into the estate during the administration period bar savings interest less than £20 (the house has remained unoccupied between the date of death and sale).

Whilst I appreciate normally an income or capital gains liability will arise in most circumstances - here there is no further CGT or Income Tax liability to the estate (that I can see) but I assume the estate still has to be registered and a Tax Return filed to keep the HMRC happy?

I add the estate was non taxable as well (no IHT was payable - due to having full use of NRBs)

I am assuming a good old fashioned letter to the HMRC explaining the position is unlikely to be acceptable here?

Any advices ?

Kerrie

2

Hi Kerrie

The information required to register an estate is minimal and you probably have it all already. It’s probably quicker than writing a letter and receiving a reply (even assuming you don’t have to chase). I would just register it.

Sara

Sara Spencer | Trust Manager

www.trustandestate.co.uk

Sara Spencer Ltd, 8 Kingsway, Harrogate, HG1 5NQ

07952 651881 | 01423 524114

Sara.spencer@trustandestate.co.uk

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3

The requirement to register a complex estate is ultra vires the TRS Regulations rendering any penalties unenforceable. TRS has no application to estates. If you are certain there is no CGT or income tax liability you need not strictly notify under s7 TMA 1970. But do not rely on the concession for savings interest in estates and trusts Tax change should help people involved with deceased estates with low incomes | The Association of Taxation Technicians because HMRC have an infinite capacity for spitefulness. If I were dealing with an estate in my own family, I would do a s7 notification (there is no set format) claiming the concession, which is notorious Income Tax: Low income trusts and estates - GOV.UK, and set up the ultra vires defence for non-registration on TRS. You would doubtless be wise to seek instructions on it having given your clients a fee estimate for registering.

Jack Harper

4

Sara’s advice is a viable alternative in our authoritarian society. It will obviate worry about the 3am knock on the door.

Jack Harper

5

I tend to agree with Sara, as the registration is quite simple and the UTR issued promptly. It allows you to make the filing and allows HMRC no tax position quickly.

Currently general post with HMRC is taking up to 8 months to be processed. I’m sure your beneficiaries will be grateful for the prompter electronic process and conclusion. You can file the return with an end date which will negate any future reporting requirements.

Lucy Orrow CTA TEP
Lambert Chapman LLP

6

I can quite believe that this organisation bags up its daily post and opens the bags at strict 8 month intervals. As I understand it, its glorious electronic procedure is such that your choice for submitting a trust and estate return is either on paper or by using an agent’s services to file electronically, which will be expensive however reasonable the charge. If Lucy is right a paper return sent on 6 April 2023 will be opened on December 6 2023 so a reasonable excuse claim might as well be included with it. Perhaps the envelope should be marked Tax Return in huge letters.

Jack Harper

7

Can Kerrie be absolutely certain that there is no tax liability?

8

One thing that is still unclear to me is whether an estate would be treated, for the purposes of s.7 TMA 1970, as having no income tax liability (and, therefore, no need to notify) in a situation where it has earned savings interest of £20.

HMRC’s April 2016 newsletter states as follows:

"Following feedback from customers and stakeholders we are putting in place interim arrangements regarding trustee returns, returns for estates in administration and payments made under informal arrangement.

This means that for the tax year 2016 to 2017 we will not require notification from trustees or personal representatives dealing with estates in administration where the only source of income is savings interest and the tax liability is below £100."

This suggests that they do not require notification but that there is still a liability, albeit one they do not intend to collect. Therefore, arguably, there is still a requirement to notify. Views?

9

Legal Beagle
Without considering the “strict” position, may I point out that in 2016/7 a tax liability of £100 equated to interest of £500 - compared to the current query concerning interest of just £20.
I also note that the Gov.UK guidance is still that if the only estate income is less than £500 “you do not need to report the estate to HMRC”.

10

Ascertaining income etc and the assessing and collecting of tax is an exercise in pragmatism. The tax due on £20 is £4. The maximum penalty for failure to notify is £4 (ie 100% of the tax). HMRC would spend more than that on any attempt to extract money from the executors. Lord Diplock in CIR v NFSE&SBL said:

“…the Board are charged by statute with the care, management and collection on behalf of the Crown of income tax, corporation tax and capital gains tax. In the exercise of these functions the Board have a wide managerial discretion as to the best means of obtaining for the national exchequer from the taxes committed to their charge, the highest net return that is practicable having regard to the staff available to them and the cost of collection.”

Of course, a discretionary power doesn’t have to be exercised.

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