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Tax during administration period of an estate

Practical Issues
Gengulphus
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Re: Tax during administration period of an estate

#59043

Postby Gengulphus » June 9th, 2017, 8:17 pm

Re question 2: As an executor, you need to make certain the estate retains enough assets to pay all its creditors, including HMRC (*). You also need to make certain that the estate does not pay out more to any beneficiary than they are entitled to, since doing that will inevitably leave the estate unable to pay some other beneficiary all they're entitled to. Subject to those restrictions, you can make interim distributions to beneficiaries as you see fit, though it would obviously be best to treat beneficiaries equally as regards when they get paid, or at least get their agreement to any inequalities.

In principle, that says: pay creditors first, avoiding selling specific assets left to particular beneficiaries if possible (**). When you've done that, give specific assets to beneficiaries who have left those specific assets. Then give beneficiaries who have been left specific monetary amounts those amounts (***), and finally, share whatever's left out among the residuary beneficiaries.

In practice, anything that achieves the same final outcome is acceptable. In particular, I suspect strongly from what you say that there's well over enough in the estate to pay the creditors, the children and any other specific beneficiaries, with everything else going to you as the only residuary beneficiary. In that case, you can pay the creditors, the children and any other specific beneficiaries as and when you see fit - just don't think that you can escape the responsibility for paying them by transferring assets to yourself as the residuary beneficiary! ;-)

Re question 5, you're supposed to give the estate accounts to all residuary beneficiaries, and I think you're supposed to be able to make them available to HMRC, the courts, the Probate Service and any other relevant authorities if they ask for them. Assuming you're the only residuary beneficiary and are not about to create trouble by demanding them from yourself as executor ;-), there's probably no need to actually produce them at all unless HMRC, etc, actually ask for them. (Having said that, it may be easier to produce them and keep them on file in case they're demanded, than to keep enough on file to enable yourself to produce them if and when they're demanded...)

Re the other questions, I should make it clear that I'm not even trying to answer them in this reply. I may (or may not) try to answer them in a later reply...

(*) That assumes the estate has enough assets to pay all its creditors in the first place. If not, it's an insolvent estate and great care needs taking about which creditors to pay and how much - enough that it's generally best to leave it to the creditors to take on the job of administering the estate. But I'm pretty certain that doesn't apply in your case!

(**) I don't actually know what an executor is supposed to do if the estate contains enough assets to pay all the creditors, but only by selling assets that have been left specifically to particular beneficiaries. Obviously they've got to sell some of those assets, but how they're supposed to choose which of them to sell, I don't know! Again, though, I'm pretty certain from what you're saying that this doesn't apply in your case.

(***) If not enough is available, I believe the rule is to share what is available out among them pro rata - but again, I'm fairly certain that doesn't apply in your case.

Gengulphus

Bouleversee
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Re: Tax during administration period of an estate

#59079

Postby Bouleversee » June 10th, 2017, 12:34 am

Gengulphus -

Thanks for prompt reply. As you suggest, not much of that applies to me. There are no creditors other than DWP who have just written to me to say they had overpaid him from the date of his death (Nov. 22) to 30 Nov. and want the overpayment back There will be more than enough to pay the children's legacy and I was not contemplating transferring anything to myself before everything else had been dealt with but, as I said, I won't know till after all the shares have been sold or transferred how much cgt is due. However, from what you say, so long as I leave sufficient cash in the account to cover the maximum tax likely, with a margin, I should be OK. Both children will receive the same amounts. I can't at this minute lay my hands on the article which suggested that the children would be liable for income tax on any interim distributions made before the estate was finalised but I'll have another look for it tomorrow# and quote it back to you.

Another question is whether the date the beneficiaries become entitled to their legacy is the date on the grant of probate. I'm thinking about that 180 days limit re transfer of shares in specie to my ISA under an APS. The chap at IWeb said it was the date they received the form from me but I'm not sure that's right.

Bouleversee
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Re: Tax during administration period of an estate

#59088

Postby Bouleversee » June 10th, 2017, 8:14 am

Gengulphus -

I have now found the article (headed "What if I am an executor or personal representative?")I had printed off, which says it was updated on 31 March 2017. It contains the following:

"The executor may pay out some income to one or more beneficiaries during the time that they are administering an estate. If they do, they need to give the beneficiaries a certificate each tax year showing the income paid and any tax deducted. The form is called an R185. You can find the form on the GOV.UK website.
If you are a beneficiary and the executor pays out some income to you, you will need to report the income to HMRC each tax year. You can do this by including the income and any tax deducted on a self assessment tax return if you have to complete one or on any repayment claim."

I have now had a look at formR185, my eyes have glazed over and I have lost the will to live. Maybe I'll feel better after breakfast.

Gengulphus
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Re: Tax during administration period of an estate

#59098

Postby Gengulphus » June 10th, 2017, 9:24 am

Bouleversee,

The estate acquires various assets on the date of death. None of those are "income", and for CGT purposes they are valued as having been acquired at probate value, i.e. their market value on that date.

While in the estate, they may earn income (most likely in the form of interest and/or dividends), and if so, the estate may be liable to pay Income Tax on that income. If the estate sells them, it will make a capital gain or loss, and may end up having to pay CGT on capital gains. The same applies to other methods of disposing of them, except for transferring them to beneficiaries as part of their inheritance (in which case the beneficiary then owns them with the same probate-value acquisition cost).

The estate has to pay any such Income Tax and/or CGT to HMRC. It is however effectively paying the tax on behalf of the beneficiaries who receive the income or capital gains, so it needs to tell the beneficiaries concerned that it's done so in order that they can report their own tax correctly: they have to add the income and capital gains concerned to their own income and capital gains, work out how much tax they owe, and then subtract the already-paid tax from that to find out how much they're still due to pay (much the same way that banks used to pay tax on interest on behalf of accountholders, and had to supply an annual certificate saying how much interest this applied to and how much tax had been paid). That's what the R185 certificates are about - note that it will often be an overall benefit, as e.g. a non-taxpayer beneficiary will be able to reclaim the tax overpaid by the estate.

The net result is that you only have to give the children R185 certificates if you pay them income or capital gains from the estate - paying them from the assets in the estate on death doesn't produce any need to do so. I am uncertain about the exact rules about when payments have to be counted as coming from the income or capital gains, but wills usually express legacies of specific monetary amounts as being "free of tax" or some similar phrase, and I would normally think of that as saying that they should be paid from the estate's assets on death (*). So assuming you're the only residuary beneficiary, I suspect you yourself are the only person you have to issue an R185 certificate to.

I am however going to repeat something I said a while back: I have the strong impression that you're rather out of your depth here, and would do well to use a solicitor. Not necessarily for the actual form-filling, etc, but to get advice about the best way to proceed, which forms you actually need to fill in, etc. I and others here can give some advice, but it's necessarily not tailored to your specific circumstances because we don't know them well enough - and don't actually want to: I for one want to steer well clear of giving anything the FCA might regard as regulated financial advice. That makes what we do say less useful, less based on experience and more complex than it otherwise would be, the last because we have to allow for possibilities that don't apply to you - even if we're completely certain they don't apply to you, this is a public message board that anyone can read - so other readers need some indication where complications exist...

(*) There will of course be corner cases where the estate's assets on death are insufficient to cover all the specific-monetary-amount legacies and need topping up with income and/or capital gains earned after death, and I don't know the rules about such corner cases. But again, I'm pretty certain your case is not such a corner case.

Gengulphus

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Re: Tax during administration period of an estate

#59114

Postby Bouleversee » June 10th, 2017, 10:32 am

Thanks again, Geng. It had occurred to me, while I was chewing it over with my breakfast egg, that as each pot of cash came in if I only distributed up to the value of it at date of death to the children, there would be no need to complete the dreaded form so far as they were concerned., so thanks for confirming that. There will be sufficient left over to pay any taxes due and leave a residual benefit for me I will account to HMRC later for any cgt and income tax accruing since the date of death up to distribution. If I need any help filling in forms at that point, I had been wondering whether to use an accountant rather than a solicitor. However, I shall endeavour to sort out the tax position with HMRC first and to make quite sure it's OK to make distributions so long as sufficient is left in the executor's acct. to pay any tax due, as well as any other outstanding queries.

fisher
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Re: Tax during administration period of an estate

#59178

Postby fisher » June 10th, 2017, 4:09 pm

Bouleversee wrote:
1. If shares are transferred in specie into my ISA account with the same provider, using the APS, is cgt still payable by the estate on any increase in value from date of death to date of transfer, above the £11,300 allowance, or is cgt due only on any shares sold to raise cash? There are no certificated shares so some will have to be sold to pay the children, unless they can be transferred in specie.


I have recently arranged some in specie APS transfers from my late father's ISAs to ISAs in my mother's name. The APS allowance that exists for a given ISA manager is effectively the same as the probate value of the ISA(s) that manager holds for the deceased. That is, it is the value of the assets in the deceased's ISA(s) at the date of death and that would include any dividends that had not yet been paid but had been earned (i.e. the deceased died on or after the ex-dividend date). At the time you request for an in specie transfer to be made, the ISA manager should value the assets at that date too. If the assets have decreased in value (or stayed the same) then all of the assets can be transferred using the APS allowance. If the assets have increased in value then you will have to choose some assets which are not to be transferred. The assets can then be transferred outside of the ISA or they can be liquidated and the proceeds paid.

I presume, (but I do not know for definite) that if the value has risen since death and there are assets that are liquidated before distribution to beneficiarys then there will be a capital gain of the difference which should be counted against the estate's CGT allowance while in administration. If the assets are transferred directly into a beneficiary's name (not liquidated) then I think this would be exactly the same as if non-ISA assets were transferred into the beneficiary's name. I presume, in that case, that no Capital Gain counts against the administration, but the beneficiary would inherit the transferred asset with a cost basis equal to the probate value of that asset (i.e. its value as at the date of death).

I think you can efffectively disregard the presence of the ISA or the APS Allowance and treat all the capital gains the same as if the assets were not in an ISA. The gains for the estate during administration are calculated in the same way. The fact that the assets are being transferred from an ISA into another ISA under an APS Allowance makes no difference to the calculations.

Gengulphus
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Re: Tax during administration period of an estate

#59204

Postby Gengulphus » June 10th, 2017, 6:59 pm

fisher wrote:I presume, (but I do not know for definite) that if the value has risen since death and there are assets that are liquidated before distribution to beneficiarys then there will be a capital gain of the difference which should be counted against the estate's CGT allowance while in administration. If the assets are transferred directly into a beneficiary's name (not liquidated) then I think this would be exactly the same as if non-ISA assets were transferred into the beneficiary's name. ...

Not just "as if" - non-ISA assets are being transferred into the beneficiary's name, since the deceased's ISA ceased to be an ISA on death!

The rules about in specie transfers under the APS allowance pay attention to the fact that the non-ISA account they're being transferred from used to be an ISA. So far as I know, nothing else does.

I believe (but am not certain, never having actually done it) that the CGT treatment of assets transferred in specie into an ISA is that they become invisible to CGT without triggering a CGT liability, and in particular take their portion of the base cost with them - so if e.g. 90% of a shareholding goes into the ISA in specie, then 90% of the base cost vanishes from CGT consideration with it, and the 10% of the holding that you're left with outside the ISA has the other 10% of the original holding's base cost.

I should add that in specie transfers into ISAs are not something totally new arising from the APS allowance: they did exist before, though only for shares acquired from a few types of employee share scheme, within a fairly short period of time from them being released to the employee by the scheme. So it will be long-established what the CGT treatment of such transfers is - it's not something that might still be in the process of being established after the introduction of APS subscriptions. I've just never had cause to ascertain that my belief about it is correct.

Gengulphus

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Re: Tax during administration period of an estate

#59445

Postby fisher » June 12th, 2017, 10:35 am

Gengulphus wrote:Not just "as if" - non-ISA assets are being transferred into the beneficiary's name, since the deceased's ISA ceased to be an ISA on death!


Yes - of course you are right.

I found this link useful to read to become more familiar with the APS legislation. It also helped me understand some of the wording of the different ISA Managers' APS forms: https://www.gov.uk/government/publicati ... a-investor

Bouleversee
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Re: Tax during administration period of an estate

#127561

Postby Bouleversee » March 23rd, 2018, 3:09 pm

Gengulphus wrote:
fisher wrote:I presume, (but I do not know for definite) that if the value has risen since death and there are assets that are liquidated before distribution to beneficiarys then there will be a capital gain of the difference which should be counted against the estate's CGT allowance while in administration. If the assets are transferred directly into a beneficiary's name (not liquidated) then I think this would be exactly the same as if non-ISA assets were transferred into the beneficiary's name. ...

Not just "as if" - non-ISA assets are being transferred into the beneficiary's name, since the deceased's ISA ceased to be an ISA on death!

The rules about in specie transfers under the APS allowance pay attention to the fact that the non-ISA account they're being transferred from used to be an ISA. So far as I know, nothing else does.

I believe (but am not certain, never having actually done it) that the CGT treatment of assets transferred in specie into an ISA is that they become invisible to CGT without triggering a CGT liability, and in particular take their portion of the base cost with them - so if e.g. 90% of a shareholding goes into the ISA in specie, then 90% of the base cost vanishes from CGT consideration with it, and the 10% of the holding that you're left with outside the ISA has the other 10% of the original holding's base cost.

I should add that in specie transfers into ISAs are not something totally new arising from the APS allowance: they did exist before, though only for shares acquired from a few types of employee share scheme, within a fairly short period of time from them being released to the employee by the scheme. So it will be long-established what the CGT treatment of such transfers is - it's not something that might still be in the process of being established after the introduction of APS subscriptions. I've just never had cause to ascertain that my belief about it is correct.

Gengulphus


I am almost at the end of the road (in more than one sense!) but I still haven't managed to get a definitive answer as regards whether shares transferred in specie to my ISA under the APS are taxable as regards any increase on d.o.d. value (presumably on me rather than the estate) or become invisible to cgt as Gengulphus thinks is the case, which would be entirely logical. I still have one holding to dispose of (1243 SSE, which have gone down a lot since the d.o.d. valuation), which cannot go into the ISA via the APS as my ISA is not with the manager which originally held it, but if I had it transferred to my dealing account in specie and sold it from there, I could use the loss against other gains in this tax year. (I may buy back some or all of them in my ISA where there is sufficient cash to cover.) There is a small net gain on the previous sales in the estate but that is less than the cgt allowance if the gain on the shares transferred to my ISA last year does not have to be included. I want to get everything wrapped up in this tax year and am running out of time. I did ask someone at HMRC some time ago but he didn't know the answer and after talking to someone else told me that the gain would be taxable on the estate. However, I think it might have been a case of Chinese whispers and am not convinced that that is the correct answer. especially when the HMRC website says that if shares are transferred to a legatee, it is at d.o.d. value. Although no particular assets were specified in the will, I am the residual legatee of his estate after the children's legacy has been satisfied, which it has. If the Estate does have to pay cgt on the gain on my ISA shares, it would make more sense for me to sell the SSE shares as executor and the loss would more or less cancel the gain (depending on the sale price) and there are some expenses I could use to offset as well so cgt is unlikely to be due, but I would have no additional loss to set against gains accruing from disposals from my personal accounts. It really all hinges on whether in specie transfers into an ISA (after which, as Geng. said, there could not subsequently be any liability to cgt) are treated any differently from in specie transfers into a dealing account or in certificated form.

If fisher is still watching, it would be enormously helpful if he could check the tax records as to what happened as regards cgt in the case of the transfer of shares from his late father's estate in specie to his mother's ISA. Or if anyone else has been through this particular mill and could quote chapter and verse, again I should be very grateful. I have asked several accountants but none knew the answer. I need to do quite a few disposals of my certificated or dealing account shares (many of which are now worth peanuts) before the next tax year and need to know whether I can have several thousand pounds loss from the SSE shares to add to my annual allowance.

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Re: Tax during administration period of an estate

#128087

Postby helfordpirate » March 26th, 2018, 2:08 pm

Bouleversee wrote:I am almost at the end of the road (in more than one sense!) but I still haven't managed to get a definitive answer as regards whether shares transferred in specie to my ISA under the APS are taxable as regards any increase on d.o.d. value (presumably on me rather than the estate) or become invisible to cgt as Gengulphus thinks is the case, which would be entirely logical


Not sure you will get a definitive answer from a web forum.. but FWIW I agree with Gengusplus that the in specie transfer to the ISA as part of your APS is not chargeable to CGT,

- the shares fall out of the ISA on death and any income becomes taxable and any gain if disposed of by the PR is charged to CGT;
- if the shares in an estate are transferred to a beneficiary by way of terms of the will then they are transferred to the beneficiary with the base cost as of death. Thus the disposal i.e. transfer, by the PR does not cause any charge to CGT.
- The beneficiary now holds the shares as beneficial owner. Because of the special rules around APS, they can be transferred to the beneficiary's own ISA wrapper in specie. To my mind this is not a "disposal" - there is no change of beneficial owner. It is quite different, say, from an in specie contribution to a SIPP in lieu of cash - which is more like a transfer to a trust.
- Is it a "deemed disposal" i.e. a special case in law, where something that is not a disposal is treated as such for CGT? I have seen no reference to this and all the HMRC notes that I have seen make no mention either. So it is neither a disposal nor a deemed disposal and so is not chargeable to CGT.
- (I am also 99% sure that the employer share case in specie transfer to ISA is also not chargeable to CGT.)

Of course the rules are all changing in April anyway .... so certainly the direction of travel is not to catch such transfers in the CGT net.

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Re: Tax during administration period of an estate

#128134

Postby Bouleversee » March 26th, 2018, 6:18 pm

Many thanks, helfordpirate. As it happens, after a lot of chasing I finally had a call from a techie at HMRC today who confirmed that the previous information I had been given (i.e. that any gain on shares transferred to my ISA in specie under APS would be taxable on the estate) was incorrect and in fact no tax would be payable so I can now go ahead and transfer the SSE shares to my dealing acct. and create a loss when I sell them at current prices which I intend to do tomorrow and then buy some back in my ISA.


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