An executor, or administrator of an estate acts as a ‘personal representative’. They are legally responsible for dealing with the deceased estate’s assets. These include money, property and possessions of the person who died, as at that time.
This responsibility vests with them from the date of death, until the date everything passes to the beneficiaries. However, they need to apply for permission from the government in the form of probate or letters of administration.
Early responsibilities during this period of administration may include:
- Settling any and all debts of the estate
- Liquidating property and shares to fund this
- Paying tax on any income the estate generates
- Reporting status to HM Revenue and Customs
Dealing With a Deceased Estate – Settling Debts
An estate may not be wound up (distributed to the heirs) until after all taxes and other debts are clear. The duties of personal representatives dealing with a deceased estate include the following in this regard:
- Settling any unpaid bills in full
- Paying all personal taxes due
- Applying for tax refunds as applicable
- Submitting a self-assessment tax return
- Returning any overpaid benefits
They must also afford creditors the opportunity to claim any entitlements. The minimum requirement is a notice in The Gazette official journal, and allowing two months to process any claims. The personal representative should then value the estate and make arrangements to pay any inheritance tax.
Managing and Selling Assets of the Estate
– Dealing With an Estate – Capital Assets and Gains
An administrator, or executor of a deceased estate has to act like the owner of a business. They may have to sell or cash-in shares, investments, or even property to pay tax or settle debts. Capital gains tax may fall due too if assets increased in value since the person died. However, there is no capital gains tax if they transfer an asset directly to a beneficiary.
– Savings, Dividends and Other Income
Certain assets, for example trading income, rental properties, and dividends and interest may continue to flow. A personal representative dealing with a deceased estate must remember to calculate and pay across any income tax due. There are two notable exceptions to remember
- Estates do not qualify for any allowances on savings, income or dividends.
- They pay income tax of 8.75% on dividends, and 20% on any other income.
Reporting the Estate to HM Revenue and Customs
A deceased estate in England may not be wound up until all taxes due are settled in full, or other arrangements agreed. Regular reports may need to reach HMRC from the day after death until the entire estate is wound down. However, the rules vary depending on:
- The value of the estate as to best ability
- The extent of the income it generates
- Whether or not there is any tax accruing
– Circumstances When These Reports are Unnecessary
HMRC is not interested in estates where the only income is bank interest, and it amounts to less than £500. Over and above that, informal arrangements may be as simple as a letter to HMRC at the end of the administration period, provided:
- The estate was worth less than £2.5 million at the time of death
- Total Capital Gains and Income Tax are less than £10,000
- Assets sold in any tax year raised less than £500,000
Dealing With a ‘Complex Estate’ in England
A ‘Complex Estate’ is one that exceeds the above thresholds. The person dealing with the estate must register it online and then provide their details. The system will trigger them within 15 days to do one of the following:
- Complete a Trust and Estate Tax Return and post it within the deadline, OR
- Submit a Trust and Estate Tax Return online using government software within the deadline
Any tax is due by the next 31st January following the tax year in the return. This is the same deadline as for sending a return online.
Closing Out the Estate by Distributing It
A deceased estate may not be shared among heirs until all taxes and debts are settled, or there is adequate provision set aside to do so. The process should be relatively simple after all you have through to date. However, do note if you ‘drain the kitty’ completely and there are still some debts, you may have to pay them yourself!
- Distribute the assets in accordance with the legal will if there is one
- If there is no legal will, share them out in terms of the rules of intestacy
Your final task should be to clear the deceased’s home of unwanted / valueless clutter. Avery Associates provides a home clearance service. Please follow this link to explore this further.
More Information That May Be Of Interest
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