Dealing with income and capital gains tax during the period of administration.

Here are some terms you should be aware of.

  • Testator- a person who has made a will or has given a legacy
  • Executor/Executrix/Personal representative (PR) - a person or institution appointed by a testator to carry out the terms of their will.
  • Period of administration - This starts the day after the individual dies to the date the residue of the estate is established.
  • Residue of the estate - what property of yours is left over after the deduction of specific gifts, debts, legacies, tax and the expenses of administration.
  • Probate/Grant of representation - the legal process whereby a will is "proved" in a court and accepted as a valid public document that is the true last testament of the deceased.
  • Estate assets - These will usually be the property and investments of the deceased.
  • Probate value - The value at the date of death usually established for Inheritance Tax (IHT) purposes.
  • Appointment of assets - The transfer of assets from the Personal representatives to the beneficiary. The is no Capital Gain at this point, the beneficiary is deemed to take over the probate value of the asset.
  • Beneficiary - person who derives advantage from the will.
  • Specific legacy - a gift in a will of a certain article or property to a certain person or persons. Where this is an income producing asset the income is taxed on the beneficiary from the date of death.
  • Pecuniary legacy - A gift of money in a will.
  • Residuary legacy - it is the legacy that consists of all the money and property that remains after other amounts of money or property is given to others.

Firstly check whether formal Self-Assessment Returns are required

If not, all you need to do is submit a summary detailing the estate’s income and capital gains during the period of administration. Where Self-Assessment Returns are required request an estate Unique Tax Reference (UTR) from the Revenue by ringing 0300 123 1072.

Tax on the estate

The estate will be taxed at rates depending on the type of income. No personal, savings or dividend allowance are available.

  • non-savings and savings income -20%
  • dividend income – 7.5%.

For the disposal of the estate assets the amount chargeable to capital gains tax (CGT) will be the difference between the proceeds and the probate value. An annual exemption is due for the year of death and the following 2 years along with a deduction for the cost of obtaining probate. The CGT rate on estates are:

  • residential property  – 28%
  • Other assets – 20%

Where a beneficiary lived in an estate property the Principle Private Residence relief may be due. Consider appointing asset to the beneficiaries prior to disposal to take advantage of the beneficiaries potentially lower rates (10% and 18%).   Capital losses are set off against capital gains in the same year and any excess are carried forward. Consider appointing loss producing assets prior to disposals to beneficiary where the beneficiary can make better use of the loss. Where assets have decreased in value check whether a reduction in IHT can be claimed.

Tax on the beneficiary

The PR will supply beneficiary with details of the income to be reported on their Self-Assessment tax Returns on forms R185.

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Published 13 September 2017.

Updated 16 May 2018.