Lifetime Planning and Wills specialist Jenny Greenland considers when executors must file an estate Income Tax return.
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Estate Income Tax return
Inheritance Tax and Capital Gains Tax are not always the only tax concern for executors. Sometimes, there’s also a need for an estate Income Tax return on income generated during the administration period. Importantly, the estate’s Income Tax return is entirely separate from the deceased’s personal Income Tax return.
An estate’s liability to Income Tax depends on various factors. And it’s the responsibility of the executors or personal representatives to file a tax return with HM Revenue and Customs (HMRC). Of course, depending on the nature of the estate, executors should seek professional tax advice. After all, they should never lose sight of their personal liability for financial losses.
An estate’s Income Tax liability depends on its value and the type and amount of income generated. For example, there’s no requirement to report interest earned by the estate if:
- it’s solely bank interest below £500; and
- the estate is not a ‘complex’ estate (see below).
However, if there’s more than £500 interest and the estate is not ‘complex’, the executors can report the interest informally to HMRC by letter.
What is a complex estate?
Executors must always register complex estates with HMRC and file a tax return. An estate is classed as ‘complex’ if any of the following apply:
- The estate’s value exceeds £2.5 million.
- The executors have sold over £500,000 of assets in any tax year.
- The total tax due exceeds £10,000.
If an estate is complex, the executors must register it as such by creating a government gateway ID. Among the information required is the deceased’s National Insurance Number.
Once registered, HMRC sends the executors a Unique Taxpayer Reference Number (UTR) to enable them to file a SA900 tax return online or by post. The return must include all estate income, including bank interest, dividend payments, and rental income.
When is estate Income Tax payable?
Income Tax is due on the estate by 31 January following the relevant tax year.