Estate Administration — Reporting Requirements to HMRC

A personal representative is responsible for managing a deceased person’s estate, and this normally includes reporting the value of the estate to HMRC and obtaining a grant of representation. Personal representatives will be known as ‘executors’ if they are appointed through the deceased’s will, or ‘administrators’ if the deceased died without a will and they are appointed through the intestacy rules.

Grant of representation

A grant of representation is nearly always required to deal with the administration of an estate. The grant is the court document which provides the legal authority of the personal representatives to deal with the deceased’s assets, and it is required to transfer or sell property, deal with investments and close bank accounts.

Depending on the value of the estate, inheritance tax may need to be paid. The tax bill, or a portion of it, must be paid before an application for grant of representation can be made. This can often be problematic, as a property or investments cannot be sold until the grant is issued. This may lead the personal representatives to opt to pay the inheritance tax in instalments (if the estate includes property or certain private company shares) or to take out a short-term loan to pay the tax until the estate assets have been sold.

Valuations

The personal representatives are responsible for valuing the estate of the person who has died. This includes property, personal possessions, house contents, cars, investments, and cash assets. This will also include any business interests, and assets which are owned jointly.

If inheritance tax is payable, HMRC will require a professional valuation of any property or land, business interests, and any personal possessions worth more than £500.

Gifts

The personal representatives must also provide details of all gifts the deceased made in the seven years prior to their death. If the deceased did not keep records of these gifts, the personal representatives often must review the previous 7 years’ worth of bank statements. There are some exemptions from the gifts becoming taxable, and these exemptions must be claimed on the HMRC account.

Tax

Inheritance tax is due at the end of the sixth month after a person’s death. If there is still tax to pay following the 6 months, interest will be also charged on the outstanding tax. The Interest rate, as of September 2023, is 7.75%, so the interest can quickly accrue to a large sum.

If the tax report is not submitted within 12 months, HMRC may also charge late account penalties. It is therefore important following a person’s death that the executors act promptly to avoid interest & penalty payments.

Depending on the deceased’s date of death and the value of the estate, HMRC has different reporting requirements for personal representatives to comply with when making the probate application.

As well as inheritance tax, the personal representatives are also required to report to HMRC the income tax position in the tax year that the person died and the income received during the estate administration. This includes bank account interest, interest on investments and potentially rental income. Depending on the value and complexity of the estate, HMRC may accept an informal report or they may require the estate to be registered for a self-assessment tax return.

The estate may also be liable for capital gains tax (CGT) if the value of property or investments has increased since the date of death. The personal representatives will need to report any CGT liability to HMRC and pay any tax due.

Summary

Weightmans' Private Wealth Team can assist personal representatives in ascertaining whether inheritance tax is payable, dealing with the reporting to HMRC, obtaining the grant of representation and dealing with the distribution of the assets. If an estate is subject to inheritance tax, it is important to obtain specialist advice to ensure the assets are properly declared to HMRC and that all the relevant tax exemptions and reliefs are claimed, to reduce the inheritance tax payable.

If the will creates a trust, the personal representatives have additional duties if they are also the trustees. Read more on trustees' duties and obligations.