This guide is an overview of the process of administering an estate. Although every person is unique and every estate is different, this factsheet sets out some of the common milestones in the process and the timescales in which you can expect the matter to progress. At the end of the factsheet is a glossary of common terms that you will hear throughout the process. You may find it helpful to refer to both documents as we go along.

The Personal Representatives are responsible for making sure that the estate is administered correctly. If there is a Will, they are called Executors and will ensure that the instructions in the Will are carried out. If there is no Will, they are called Administrators and will follow the rules for inheritance set out by the law. We will use the term Personal Representatives in this factsheet.

The first three months

In the first three months after a person dies the Personal Representative will need to:-

• Register the death
• Arrange the funeral
• Instruct a legal adviser to assist, if you wish
• Gather details of all the person’s assets and liabilities
• Write to the asset holders and creditors to obtain valuations of the estate – if we are advising you, we can do this for you
• Obtain three independent valuations of the person’s property
• Value all the person’s household goods and possessions
• Make a list of all gifts made by the person in the seven years prior to their death
• Arrange insurance for any property and contents
• Inform utility providers and the council that the person has died
• Notify government institutions such as the DWP and HMRC
• Review Income Tax position up to the date of death
• Assess whether you need a formal Grant of Representation to administer the estate
• Prepare the Inheritance Tax and Probate Application forms
• Start Estate Accounts Estate Administration
• Consider whether the estate qualifies as a Complex Estate which needs to be reported to the Trust Registration Service
• Obtain contact details for beneficiaries and inform them of their inheritance

Three to six months

The Personal Representatives, or their legal advisers, should now be ready to:-

• Finalise the Inheritance Tax and Probate Application forms
• Sign the Inheritance Tax and Probate Application forms stating that they have made their best efforts to disclose all relevant information. Failure to do this may be perjury and could result in a fine or a prison sentence where wrong information is reported
• fraudulently or negligently.
• Submit the Inheritance Tax account to HMRC
• Pay any Inheritance Tax due
• Submit the Probate Application form to the Probate Registry
• Pay the Probate Registry fee for the Grant of Representation and any copies of the Grant
• Answer any queries raised by the Probate Registry
• Receive the Grant of Representation

Six to twelve months

• Now that the Personal Representatives have the Grant of Representation they will need to:-
• Complete forms to close bank accounts
• Complete forms to close or transfer investments or shares
• Place statutory notices advertising for creditors
• Notify the council that the Grant of Representation has been issued
• Start paying liabilities and administration expenses
• Put any property on the market for sale
• Arrange for the property to be cleared and personal possessions sold or transferred to a beneficiary
• Once a sale has been agreed, instruct conveyancing solicitors
• Consider any Capital Gains Tax mitigation measures if assets are selling for more than the valuation submitted with the application for a Grant of Representation
• On completion of the sale, take final meter readings and submit to the utility providers
• Notify the buildings and contents insurers and council of the sale
• Report any Capital Gains to HMRC
• Work out whether any refund of Inheritance Tax is due after the sale of assets
• Complete forms to claim any Inheritance Tax refund
• Submit bankruptcy searches before making any payments to beneficiaries
• Pay any legacies contained in the Will
• Consider whether an interim payment to the residuary beneficiaries is appropriate
• Update Estate Accounts

Twelve to eighteen months

• We are now approaching the end of the administration process. To finalise the estate the Personal Representatives will need to:-
• Finalise Income and Capital Gains Tax for the period of administration. Work out whether a tax return is required or if the submission can be made informally.
• Pay final Income Tax
• Obtain Inheritance Tax clearance from HMRC
• Prepare forms confirming each residuary beneficiary’s share of income received from the estate
• Prepare final Estate Accounts for approval by the Personal Representatives and residuary beneficiaries
• Submit bankruptcy searches before making any payments to beneficiaries
• Arrange a final distribution to the residuary beneficiaries

Other things to consider

• It is possible that someone may make a claim against the estate or say that the Will is invalid. The costs of such challenges are generally paid out of the estate. It is important that you take specialist advice as soon as you become aware of any potential challenge.
• A beneficiary can choose to vary or disclaim their inheritance. This must be completed in a formal way and within specific timescales. This can have an impact on the
• Inheritance Tax payable and you should take advice if you are unsure of the effect of a variation on the estate.
• A person may set up a Trust in their Will. There are different types of Trust which have different rules and different tax treatment. You should take advice to understand how the Trust affects the distribution of the estate.

This guide can be downloaded here, alongside our glossary of terms for estate administration.

With elevated public debt and struggling public services, it seems clear that the changes will focus on laying the groundwork for tax increases and spending cuts in order to try and address that £22bn black hole of overspend from this year alone.

Inheritance Tax

The previous government made promises about increasing the Inheritance Tax (IHT) allowances on second death for married couples to £1m and they took their time in doing so, only introducing the residential nil rate band until 2017 incrementally so the full allowances were only claimable from 2020. Despite the increase in exemptions, inheritance tax revenue is at an all-time high with receipts of £7.5bn. Will the chancellor deem that its middle England’s time to feel the tax pinch? Reform options could include:

• Abolishing the residential nil rate band, which will result in an additional £140,000 for spouses on the second death, seems likely. Especially as this is a relatively recent exemption.
• Reducing or capping the current 100% relief for Agricultural or Business Property or tightening the criteria to make it more difficult to claim.
• Increasing the rate of IHT for larger estates to say 50%.

Capital Gains Tax

Capital Gains Tax (CGT) rates are at a historic low so increasing them would be an obvious choice. Other options could be:

• Bringing CGT back in line with Inheritance Tax (IHT) to 40%.
• Reviewing some of the most used exemptions, for example, putting a threshold on private residence relief at say £2m.
• Scrapping holdover relief is often used when transferring assets into discretionary trusts.

The other concerning consideration is when they will deem the changes to take effect. Will it be from budget day or will individuals have some time before the next tax year to make disposals, this could result in a mass sell-off of assets which would provide a short-term boost for CGT revenues.

Of course, we can only speculate at this stage but we do know that changes to personal circumstances and legislation are constant. Having regular reviews and undertaking tax planning exercises will give you the bespoke information and you can then choose the best options for your own personal circumstances.

How to help out your family with tax-free gifts

Ostentatious wealth is no longer appealing in times of pandemic and many people are looking into their families’ tax arrangements and how to pass on their assets within the family.

The easiest way to help children and other family members is via regular gifts out of income. This is efficient as inheritance tax (IHT) is not charged on gifts made from a person’s ‘excess income’, which is the extra income not required to maintain the person’s usual standard of living. There may be difficulties in proving that the gifts came out of the ‘excess income’ and the advice is to keep detailed records of your regular incomings and outgoings.

Parents can also pay school fees for the grandchildren on behalf of their adult children and these payments can be IHT exempt if they are regular and paid from the excess income. The gifts are also protected if the child divorces or becomes bankrupt.

If the school fees are paid from savings – i.e. not from excess income – the donor will have to survive the gift by seven years to reduce their IHT liability.

How much money is eligible for a tax-free gift?

Based on current rules, it is possible for the individuals to gift assets or cash up to £3,000 in a tax year which will not be included in their estate for IHT purposes at the date of their death. Gifts worth more than £3,000 are called potentially exempt transfers and may be subject to IHT if the donor dies within seven years from the date of the gift.

Parents can gift up to £5,000 to their children as a wedding gift and grandparents £2,500. Unlimited gifts of up to £250 are also allowed to as many people as you like.

Using a family trust to gift wealth

Using family trusts is an alternative to pass wealth down to younger generations, and there is a limit of £325,000 per individual – or £650,000 per couple – which can be ringfenced into a trust without triggering an immediate IHT charge. However, the taxation of trusts is complex and specialist tax advice must be sought before creating new trusts.

How much money should you give as a gift?

Finally, donors must be careful not to give away too much. Their income may have been reduced by the drop in dividend yields or pension funds reduced by the recent market downturn. Parents need to reassess what they need for themselves and not deprive themselves of assets. A word of warning is to only gift what you can afford to lose forever as if you make a gift and take some benefit back – i.e. gift of a property to children but the parent is expecting some income back – then for IHT purposes, this will be treated as if the parent had never made the gift and can lead to tax penalties.

I am an optimist. One of the good things that has come out of this pandemic is probably that people have spent more time together and have focussed their minds on their families’ circumstances, valuable personal relationships, wishing to look after each other. We have seen endless mortality stats and excess deaths, which has probably created the perfect opportunity to revisit issues like transfer of wealth and discuss some fundamental questions.

Our Probate Trusts and Wills team at Mayo Wynne Baxter is here to discuss probate and inheritance tax advice and if you have any questions, please do not hesitate to contact us here.

When a person dies without a Will, the law states who will inherit. This law is known as the rules of intestacy. The law is the same for everyone, and there is a strict order of priority for inheritance, which broadly follows the family line. It does not take into account individual family circumstances and cannot be changed without the agreement of the beneficiaries who inherit. It is essential to prepare a family tree when dealing with the estate of a person who has died without a Will, to make sure that the estate is distributed correctly. Although this is a brief introduction to the order of priority and inheritance, the rules of intestacy can be complicated and should consider taking legal advice before dealing with the administration of the estate.

Married couples
Where one half of a married couple dies, the surviving spouse will inherit from their estate. What they inherit depends on the size and nature of the estate, and whether the deceased also had any children.

Where the deceased had no children, the survivor will broadly inherit all the deceased’s assets, subject to some exceptions, such as joint property owned with another person.

Where the deceased had a spouse and children, if the value of the estate is under £270,000, the surviving spouse will inherit the entire estate. If over £270,000, the assets will be split between the surviving spouse and the children. The surviving spouse will receive the first £270,000 in the estate, as well as all the deceased’s personal possessions. Anything left over will be divided into two. The spouse will take half, and the deceased’s children will inherit half.

Children
Where the deceased had no surviving spouse but did have children, the children will inherit their parent’s estate equally. If any of them have died before the deceased, leaving children of their own, those children will inherit in their parent’s place.

Remoter relatives
If someone dies without a spouse or children, their wider family will inherit. In priority order, their parents, siblings, nieces and nephews, grandparents, aunts and uncles or cousins will inherit. If there is more than one person in the class (i.e. if the deceased had two surviving parents), they inherit equally. If they leave no surviving family, the estate passes to the Crown. Friends and loved ones who are not blood relatives do not inherit. Once someone from the class has been identified, it is not necessary to look any further, so if the deceased’s parents survive them, they inherit the entire estate, and the inheritance does not filter down the list.

Cohabiting couples
Unfortunately, the intestacy rules do not provide for couples who are not married, no matter how long they have been together. If your partner has died and you were not married, you will not inherit their estate under the intestacy rules. The exception to this rule is joint property, for example, a house or bank account in both names, which may pass to the survivor. It is important, if you are in this situation, that you take legal advice as we will be able to advise you of your rights and entitlements.

We know that every family is different, and the rules of intestacy can seem unfair. If you do not have a Will, it is important to make one, to ensure that your estate is distributed in accordance with your wishes. If you know someone who has died without a Will and the intestacy rules does not result in an adequate provision for their loved ones or dependents, we may also be able to help you.

It is common knowledge that there is a potential inheritance tax liability for gifts you have made in the last 7 years before your death. Gifts include cash, property, shares, vehicles, household and personal belongings. It also includes any monies lost when you sell something for less than it is worth.

There is no inheritance tax due on any gifts you give if you live for seven years after giving them (unless the gift is part of a trust). This is known as the seven-year rule.

If you die within seven years of making a gift and there is Inheritance Tax to pay (only if the gifts are in excess of your £325,000 allowance), the amount of tax due depends on when you gave it. The inheritance tax rate is 40% for gifts made in the three years before your death and for those made three to seven years before your death, they are taxed as per below on a sliding scale known as ‘taper relief’.

Years between gift and death

Rate of tax on the gift

Please note that any gifts you make that you are still benefiting from such as continuing to live in the house you have gifted, will form part of your estate for inheritance tax purposes.

1. Spouse or Civil Partner Exemption

Any gifts made between spouses or civil partners, provided they live in the UK permanently, are exempt.

2. Charity and Political Party Exemption

There is no inheritance on any gifts made to charities and political parties.

3. Small Gift Allowance

You may make gifts of up to £250 to as many recipients as you wish in each tax year without needing to keep records. If any individual receives more than £250, the whole value of the gift must be taken into account. Additionally, any Christmas or birthday gifts you give from your regular income are exempt from Inheritance Tax.

4. Wedding or Civil Partnership Allowance

You can give £5,000 to a child and £2,500 to a grandchild or great-grandchild and £1,000 to anyone else who is getting married or entering a civil partnership in each tax year.

5. Annual Allowance

You have an allowance of £3,000. Gifts to one, or more, recipients to a total value of £3,000 will not reduce your Inheritance Tax allowance or be subject to the seven-year rule. For example, you could give one child/person £3,000, or you could give your two children/people £1,500 each and this will not count towards your inheritance tax allowance.

If you have not used your allowance for the previous tax year you can carry forward your unused allowance for one year only. Any unused allowance not carried forward will be lost. Therefore, if you have not used an allowance for the last two tax years you can gift a total of £6,000 away up until the end of the tax year (5th April). Then on 6th April you can also use your new allowance of £3,000.

If the value of all gifts in a tax year exceeds the annual allowance, the excess will reduce the amount of tax-free allowance available for your estate.

6. Gift out of Surplus Income

If you have a good pension and investment income and do not spend all of your income which means that it is just accumulating as capital, then you can also gift this income in addition to your annual allowance. You will need to keep careful records of your outgoings to show your surplus and the amount of surplus that is gifted.

It is important to keep a detailed record of the gifts you have made (what you gave, how much you gave/the value, when you gave and to whom) so that the appropriate exemptions/allowances can be used to minimise any inheritance tax liability on your death.

Who pays the inheritance tax (IHT) the giver or receiver?

In the majority of cases where someone has died and the assets in their estate exceed the allowance for their circumstances, then the estate will pay the inheritance tax. This means that the Executors (if there is a will) or Administrators (if there is not) are responsible for organising the payment of IHT to be made to HMRC. The IHT is generally paid directly from the bank account, or other qualifying assets, of the deceased.

Who is liable for IHT?

One of the historical issues around this problem is that a large amount of IHT has to be paid before a Grant of Probate or Letters of Administration (if there is no will), is issued by the Court. If there are no liquid funds in the estate, for example just property and no cash, HMRC will expect the Executors/Administrator’s to obtain a bridging loan to pay the initial amount so that the Grant can be issued and the property in the estate sold. If this is not possible in exceptional cases HMRC will issue what is called a Grant on Credit. This is very technical and something which one would need to take specific legal advice on. The IHT owed is then repaid as soon as the property in the estate is sold.

However, there can be a trap with the payment of IHT, whereby you will be personally liable for the tax, of which many people are unaware. If the deceased made lots of gifts during the seven years prior to their death and these exceed the deceased nil rate band of £325,000, then the recipient of the gift is liable to pay the IHT. This can catch people out who have received gifts in the years previous to death and all the money has been spent. It can be difficult to then find 40% of the value of a gift which would be due to HMRC at that stage.

What is a gift for IHT purposes? This can be cash, investments, property, cars, jewellery, art, furniture and the list goes on. Anything which has value and has the effect of reducing the value of the estate of the person making the gift is a gift for IHT purposes.

Over the years I have calls from many clients asking if they can give their house to their children but remain living in the property. This is an absolute no no as HMRC will still consider that asset to be part of the deceased estate and they will pay IHT on the full value, despite paying for the transfer and leaving themselves vulnerable with no security of tenure within their own home. We call these types of gifts, gifts with reservation of benefit, and even if the transfer was made 20 years ago or more, you cannot eat your cake and have it too.

Do you pay tax on inherited money in the UK?

Inheritance tax, deceased estates and lifetime tax planning are complex areas. There are many solutions available and it is important to consider all of the taxes in turn before deciding to make a gift or giving money into a trust. We have a very experienced team on hand to advise and plan on all the aspects I have mentioned above and can help with as much or as little as you require.

My advice? Ensure that your affairs are in order with proper planning to reduce any nasty surprises later down the line! Contact us today to find out how we can help.

If you are administering an estate of someone who has died, then as the personal representative you need to make sure that you understand how to deal with the income tax and capital gains tax in the administration period.

The administration period is the time from the date of death to the date that everything has been paid out or distributed in an estate.

From 5 April 2024 estates with all types of income up to £500 in every tax year of the administration will not pay income tax and that income does not need to be reported to HM Revenue and Customs.

At the other extreme certain estates must be registered for Self-Assessment with HM Revenue and Customs and they call these estates ‘Complex Estates’. A ‘Complex Estate’ is one which:

(i) has assets of over £2.5 million or
(ii) where assets are sold in any one tax year of over £500,000 or
(iii) where the total tax liability (income tax plus capital gains tax) due over the whole administration period is over £10,000.
The registration is done online through HM Revenue and Customs Trust Registration Service and a Unique Taxpayer Reference is sent to the executor in the post. This is different to the Unique Taxpayer Reference that the deceased would have had if they were completing lifetime tax returns and it is important not to muddle them up!

Once the estate is registered as a Complex Estate expect Tax Returns to be issued and it is important that these are submitted on time or penalties will be issued.

If the estate is neither ‘Complex’ nor has less than £500 of income in every tax year, then HM Revenue and Customs should agree to deal with the income tax and capital gains tax in the estate informally by letter at the end of the administration period. See https://www.gov.uk/probate-estate/reporting-the-estate

Estates do not get any personal allowances for income tax and pay tax at the basic rates of 8.75% on dividends and 20% on all other income. The personal representatives should give the beneficiaries tax certificates to show them their share of the income received and tax paid, so the beneficiaries know what to put on their own tax returns.

During the administration period, ISAs are not subject to income tax or capital gains tax for three years from the date of death or when they are closed, sold or transferred. So, the income and gains from ISAs do not need to be put on the estate tax return or declared informally or included in the £500 tax-fee amount during this time.

From 6 April 2024 estates have an annual capital gains tax allowance of £3,000 and an ordinary capital gains tax rate of 20% with an additional 8% for residential property. If you sell a property at a gain from the probate value in the administration period do take advice before you exchange contracts to see if you can reduce the Capital Gains tax due.

If there is a chargeable gain on a residential property, then the personal representatives will need to complete a Residential Property Capital Gains Tax return within 60 days of completion and pay the capital gains tax. Be careful when you come to complete the capital gains tax pages of the estate income Tax Return (if one is required) with the same information and don’t forget to fill in box 5.8A with the capital gains tax that you have already paid so it all ties up nicely with HM Revenue and Customs records.

Tax in the administration should not be too complicated or too onerous, it just needs the personal representative to keep good records and know what needs to be done and when. If we are instructed on a full administration of an estate, we will advise you as appropriate throughout the administration to ensure that the obligations of the personal representative re tax in the estate are all met.

Please contact, Lucy Hollingsworth if you need any advice on the above.

Many people wish to include in their Will some simple wishes regarding their funeral, but this is usually a simple statement regarding a preference to either be buried or cremated. Under the present law, these wishes are not legally binding. The best way to ensure your wishes will be respected is to make everything as clear as possible.

We often note that this is the only extent to which their loved ones were aware of what their funeral wishes are. However, if you have ever had to plan the funeral, you will be aware that there is a lot more to think about from the location of the service and wake to who should officiate.

Other decisions include the flowers, hymns/music and poetry choices or even the general tone of the funeral. Would your loved one prefer a more traditional service or a celebration of life? Discussions regarding all these things and budget can quickly be a source of contention between loved ones.

When several people are involved in arranging a funeral, there can be differences of opinion and potential disagreements, especially when emotions are running high. Leaving clear instructions will help everyone give you the funeral you would like.

Understandably, it’s difficult to acknowledge that you, or someone you love, will one day no longer be here. However, it’s important to ensure that your end-of-life wishes are known and respected. This can be a difficult conversation, so we recommend that you take some time to formulate your ideas in writing in your own time.

In order to help our clients do this, we have introduced a new funeral wishes form which can be used to provide as much detail as our clients would like regarding their wishes. This can be stored alongside their Will for their Executors to request, and our clients can provide copies to their loved ones to hold onto.

This form assists our clients’ loved ones to make the key decisions in relation to arranging the funeral and answers the most important questions such as:

• Is there a pre-paid funeral plan?
• Will it be a burial or cremation?
• Do you have wishes regarding the location of the service?
• Are there any more detailed burial wishes such as the depth and location?
• What flowers would you want?
• Would you like charity donations and do you have any in mind?
• Do you have a preference regarding your Coffin, the transport, tone, clothing, music, or poems?

The link to our funeral wishes form can be found by clicking this link here.