UK: Reporting Beneficiaries' Estate Income To HMRC – Clarification Provided

Last Updated: 13 September 2017
Article by Charlie Tee and Isabel Moreton

HMRC and the ICAEW (Institute of Chartered Accountants in England and Wales) have provided useful information on how personal representatives should report what has been paid to beneficiaries from estates which they are administering. They also explain how beneficiaries should report that income on self-assessment tax returns and R40s (claims for repayment of tax deducted from savings and investments).

Problems had arisen as, from 6 April 2016, a personal savings and dividend allowance was introduced for individuals, and tax on savings is no longer being deducted at source by financial institutions.

In essence, where income from an estate in administration is paid out to beneficiaries, personal representatives need to let beneficiaries know:

  • What income they are entitled to,
  • How much of it consists of dividends received before and after 6 April 2016, and
  • Whether it includes any untaxed bank interest.

Further details on how provide the information to beneficiaries, and what to put in which box of the R185 can be found on the ICAEW website here

The subject is of interest to charities because they are entitled to recover any tax deducted during the estate administration on their share of an estate.

Online developments at HMRC – IHT applications and online register of trusts and estates

There have been two major developments at HMRC in terms of what can be processed online:

1. IHT applications

Firstly, the online inheritance tax return service is now available to the general public for excepted estates where IHT is unlikely to be payable and where the deceased was a permanent resident of England, Wales or Northern Ireland.

The form is completed on screen using Adobe Reader, and there is information available to assist, including a checklist to help applicants check whether they can complete Inheritance Tax estate information online, available here

2. Online register of trusts and estates

Secondly, HMRC's online register of trusts and estates is also now available, replacing form 41G (Trusts). Trusts and estates which have a UK tax liability will need to be registered with the service by 31 January 2018 (or 5 December 2017 in most cases) including any already notified to HMRC using form 41G. Those wanting to access the system need to sign into or set up a Government Gateway account. Each trust's income and gains will then be reported after the end of the tax year on a Self Assessment Trust and Estate Tax Return.

HMRC says, in relation to the Estates Online Service, registration for complex estates needs to happen by 5 October of the tax year after the estate is set up. Information to be provided includes details of the estate, personal representative, deceased person, the tax years for which the estate needs to declare Income Tax or CGT, and if the administration period has ended, the period end date.

The Trusts Online Service will also be used to pay Income Tax and Capital Gains Tax. New trusts need to register by 5 October of the tax year after the trust is set up (or when it starts to receive income or make chargeable gains, if later). To be provided are details of the trust, trustees, settlors, beneficiaries, others with influence or involvement in the trust and assets settled into the trust, and of any protector who has been appointed, together with the tax years for which the trust needs to declare the tax liability.

A will trust with a tax liability will also need to be registered (or one set up following an intestacy), for which details of the deceased will need to be provided.

More information can be found here

The online register is very much in the news at the moment and lots of trusts/estates are having to register, even if they have been paying tax and submitting tax returns previously.

It will be particularly relevant where a charity or its officers are an executor as they will have to ensure that the estate is registered, whilst other executors will also have the obligation to register.

Digitised probate applications at HMCTS

Not to be outdone by HMRC, HMCTS (the Courts and Tribunals Service) have also been making 'progress' in the online sphere. In July they published a blog discussing the development of a new online application form for personal applicants and solicitors, read here.

As set out on the blog, private beta testing of the service for personal applicants started in June and will last for about six months. It is initially being used for simple cases, for instance where there is only one executor and an original will is available. The system will incorporate a digital Statement of Truth, removing the need to swear an oath at a Probate Registry or solicitor's office. Whilst the blog does not say how this will work in practice, the Law Society Gazette reports that the service is likely to use the existing Gov.UK Verify service, which uses third party companies to authenticate an individual's online identity. View here

The team are now researching and developing the service which will ultimately be available for professional users. Research shows that solicitors have different needs according to the size of the firm and level of experience in this field. The aim is to create an appropriate service which will reduce the number of returned applications from solicitors.

The reality is that people may find it easier to 'accidentally' omit assets if they are interacting with a computer rather than a real person. The formality of an oath is quite rightly taken seriously by many who otherwise may be tempted to stray. These concerns appear simply not to be addressed.

The blog says that probate hearings may also eventually be incorporated by the system – although it's far from clear what that means.

'Making a Will – Law Commission Report 231

The Law Commission has published its consultation on the law of wills. Full details and copies of the relevant documents can be found here.

Given that it is estimated that around 40% of the adult population do not have a will, and that where a will has been made issues with validity can arise, the consultation is looking to see whether and how the law surrounding wills should be updated.

Proposals on which they are consulting include:

  • Whether the court could dispense with the formalities of a will if the deceased's wishes are clear
  • Whether the test for capacity should change, given increased medical understanding in this area
  • Providing statutory guidance for those required to assess testamentary capacity when a will is being prepared
  • Changing the law around undue influence
  • Lowering the age for preparing a will to 16

As has been much reported in the press, the Commission is also looking into whether electronic wills are a possibility, 'to better reflect the modern world'.

The consultation was published on 13 July and closes on 10 November 2017. Details of how to respond can be found via the link above.

Whilst it is tempting to assume there is a panacea to existing problems eg number of those who die without a will, existing formalities do provide an important degree of protection.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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