The law has not changed but unfortunately, HMRC has continually changed its administration procedures regarding estates.
The law (Section 7 Taxes Management Act 1970) requires the personal representatives to notify liability within 6 months of the end of the tax year of liability. Failure to do so may result in a “late notification penalty” (under Schedule 41 Finance Act 2008). For example, if an individual dies during the 2018/19 tax year and the estate receives untaxed income or has a chargeable gain in the tax year then notification is required by 5th October 2019.
How to notify under the law is made more difficult by the absence of a specific form for this purpose. Instead, there are different ways of notifying HMRC which depend on the specific details of the estate concerned.
Telling HMRC about the administration period
Guidance can be found within the Gov.uk pages of “Self-Assessment Tax Returns” at:
https://www.gov.uk/self-assessment-tax-returns/returns-for-someone-who-has-died
Initially, this covers the filing obligations regarding the deceased person before considering the estate administration period.
HMRC state that you must file a tax return if any of four listed conditions apply (which means the “informal arrangements” preferred by HMRC cannot be used).
- the total Income Tax and Capital Gains Tax due for the administration period was more than £10,000
- the estate was worth more than £2.5 million at the date of death
- the date of death was before 6 April 2016 and more than £250,000 a year came from the sale of the estate’s assets by administrators or executors
- the date of death was on or after 6 April 2016 and more than £500,000 a year came from the sale of the estate’s assets by administrators or executors
Unfortunately, some of those conditions will not be known until after the administration period has ended.
HMRC prefer personal representatives to use their “informal arrangements” which are referred to later in the above guidance. Under these arrangements, the personal representatives notify HMRC when the income tax and CGT liability of the estate are known (i.e. after the administration period has ended) and send this information to HMRC at the address provided in the guidance. As mentioned, these arrangements are only available if none of the four listed conditions will apply. HMRC will then issue a statement and a payslip to disclose the liabilities and pay the tax due. This administrative procedure bypasses the self-assessment legislation and so should avoid the possibility of any late notification penalty arising.
If any of the four listed conditions are met (or perhaps if the personal representatives are unsure whether they will be met) the personal representatives must formally register the estate online for self-assessment using the “Trust and Estates Registration Service” through the link provided. Even if the “informal arrangements” are available, the personal representatives can still chose to formally register for self-assessment under the Trust and Estate Registration Service if they prefer to.
If you have any doubts then HMRC advise that you call them on their “Deceased Estate Helpline” on 0300 123 1072.
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