The Lemon Fool

Maybe I should be asking this on the tax board but it's rather more to do with the legal position so here goes:

Am I right in thinking that any dividends that are due from the date of death (excluding any that were already x-dividend at that point) should go into the executor's account and are taxable at 7.5% on the estate and if shares are sold after they have gone x-d, the dividends should still be paid into the exec's broker account and thence to the executor's bank account and are still taxable on the estate. OK so far, I hope. But what happens when a spouse applies for the share holdings in an ISA (no mention of cash as that has up to that point all been paid into the executors account) and several of the holdings were x-dividend previously and some of the dividends have been credited to the broker's account in the name of the executor and not yet paid out to the bank account, with others still to come?

I ask because I applied to have the ISA shares transferred to my ISA under the APS on Aug. 31, the application was received on September 4, and when I enquired last week how long it would take before they were transferred I was told that it would be at least a fortnight, yet today I went on to the accounts and I see the ISA shares have been transferred to my ISA today and so have some dividends which I had asked a couple of days ago to be transferred to the executor's bank account. Since they had been credited to the executors broker account and were x-div. before the date of the transfer application, surely those divs. belong to the estate, don't they? And does not the same apply to any divs. still in the pipeline which were x-d before the transfer application was received, or is it before the transfer was actually effected which only happened today? I had not asked for any cash to be transferred to my ISA and assumed that only divs. from shares which went x-d after the transfer or the application (which is the critical date?) would go into my ISA account.

I have emailed a contact at HMRC but no joy so far.

Dividends that are xd at the date of death must still be reported in the executors tax return and are subject to the 7.5% dividend tax. For income tax purposes the tax of a dividend is by reference to the payment date, not the XD date and is the full amount of the dividend.

There is obviously a chance of double taxation because the ex div amount is included in the estate for IHT purposes and therefore may be subject to 40% IHT. No allowance is made for this in the administration of the estate and the estate is treated as receiving the full dividend with no allowance for the fact that 40% of it has gone in IHT!

Certainly not fair but that is the law!

Really! I hadn't realised that, so thanks for the info. Perhaps I would have discovered it when I came to do the tax return. I'll make sure to include them. Fortunately, no IHT to pay in this case.

However, that's not what I was asking about at the moment. Do you know the answer to my questions?

Sorry I don't have any specific knowledge of that but I would imagine the same principles apply.

An ISA ceases to exist as from the date of death and any income subsequently received would, I would expect, be income of the estate. There is an extra ISA allowance for the spouse equal to the value of the ISA at the date of death and there is a facility I believe to transfer shares from the old ISA to the spouse's ISA valued as at the date of the transfer (not the value per probate) up to the amount of that additional ISA allowance.

Only dividends accruing after the shares have been transferred to the spouse's ISA would belong to that ISA and so be tax free.

Nothing in these rules indicate any special provision for dividends but I haven't read the small print.

Scrumpyjack -

Yes, I applied to transfer that particular ISA to mine under the APS, as previously stated and I feel sure you are right about the divs. Pity the ISA Managers don't seem to know the rules. I had not applied to subscribe any cash at this juncture, only the shares in specie. I actually need the divs.which had gone x-d before the transfer for other legacies and estate expenses including tax. There are several in the pipeline. It is all going to change next year, assuming the changes get through the Finance Bill which I feel sure they will. The ISA wrapper won't be removed during the admin. period and divs and gains won't be taxed so far as I can gather but I am not entirely sure of the detail.

Further to previous posts, I got the dividends of the holdings which had gone x-d before I applied for my APS transfer paid back into the executor's account and other dividends which were x-d which were in the pipeline and have been paid subsequently have been credited to the executor's broker account but now I see that the Polypipe dividend paid on 29 Sept. which was x-d on 7 Sept. has been not been credited to my ISA account but to the executor's account. My application, for the APS ISA transfer posted on Aug. 31 was received, they say, on 4 Sept. and the p/f was valued as at that date but the shares had not settled in my ISA account till Sept.13, the transfer not having been put in process till Sept. 12. I should have thought that if the shares have to be valued on the date my application was received that would also be the effective date so far as the ownership of the shares and the entitlement to the dividend was concerned. Am I not entitled to the dividend, tax free in my ISA, rather than the estate, tax payable at 7.5%? I don't see why anything should depend on how long they take to do the job. I am already losing a considerable amount because it took 2 months to transfer one ISA p/f from one broker to another, during which time several holdings went x-d and the value of nearly all the holdings dropped a lot.

Scrumpyjack -

I wonder if you (or anyone else) know the answer to this one as well. The consolidated tax certificate for my late husband's (unwrappered) ISA which I received from one broker shows all the dividends, including foreign, reits and PIDs as being paid gross. The other broker hasn't sent a certificate (doesn't seem to think it has to) but their statement for that unwrappered ISA shows some foreign dividends as having been paid net of tax but doesn't show what the tax was or give the gross amount; no PIDs in that one. My certificated PIDs in the same company still get 20% tax deducted and my foreign shares also get a withholding tax deducted so I wonder what HMRC will make of all that.

I have tried to get an accountant who does estate tax returns but haven't as yet found one. They all seem to do just business and personal tax returns. Having had a look at form 900 online and discovered I shall have to buy software to do it online and having been told I don't have to tell them about the relatively small amount of income received in 2016-17 (no disposals in that year)) until I finalise the administration which I hope to do soon, I shall write to HMRC and see if I can sort it out informally. Form 900 is rather daunting. HMRC's website suggests that this will have been sent to me but it hasn't. I shall probably run out of ink if I print it off.

Sorry I don't know the answer to your query about the dividends.

I have used the 'informal' letter and manual computation facility rather than complete the form 900. The income consisted of UK dividends and rents. Much much simpler than using the form 900! HMRC accepted this without problems.

Depends if you meet the conditions for the informal return facility.

https://www.gov.uk/hmrc-internal-manual ... l/tsem7410

The Taxcalc Form 900 software only costs £40 and I'm sure that will be a lot easier than the paper version plus you have all their help screens etc.

Thanks, Scrumpyjack.

I think I should be able to qualify. Depends whether cashing in a cash-ISA and NS&I bonds and transferring cash from ISAs counts as selling assets. I shall assume it doesn't.