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Christmas Season – income tax and estates 1

Have you ever wondered why in the Christmas nativity Joseph and a heavily pregnant Mary travel ninety miles on foot and donkey from their home in Nazareth to Bethlehem? Well, the answer is tax!

The Roman Emperor Caesar Augustus, having expanded the Roman Empire to include the entire Mediterranean world, decreed that a census should be taken. This census was so the people now in the Roman Empire could be counted and taxed. Each adult was required to register in the town of their family line. For Mary and Joseph this was the town of Bethlehem. So, tax is the reason for their long and badly timed journey from their home in Nazareth to Bethlehem.

Fast forward two thousand years and as we approach the Christmas holiday season, we also have not far behind it the Self-Assessment Tax Return submission deadline. By 31 January 2023 all Self-Assessment Tax Returns that are required for the year ended 5 April 2022 need to be submitted online or there is an automatic penalty for late filing of £100.

If you are administering an estate of someone who has died, then there are two aspects of Self-Assessment that you should be aware of. The first of these is the income tax to the date of death of the deceased.

A good place to begin is to use the ‘Tell us once’ service using the unique reference number that will be provided to you when you register the death. This is a service which means that you can notify a death to most government organisations in one telephone call or through the online system. You have 28 days from the date of registration of the death to complete this application. This system will notify HM Revenue and Customs who will then write to you as personal representative. If you don’t use the ‘Tell us once’ service, you can contact the HM Revenue and Customs bereavement helpline by phone or write to them.

If the person who had died was completing Self-Assessment Tax Returns, then HM Revenue and Customs will probably issue a Tax Return to be completed from 6 April to the date of death. If there are any outstanding tax returns from previous years, they will let you know that you need to complete these as well. If they were not completing tax returns HM Revenue and Customs will calculate any tax due to or from the estate for you. When you get these calculations, it is really important that you look at them carefully to check that all the income that you are expecting is on the calculation. Many estates where tax has been deducted from pay or pensions under PAYE will be due an income tax repayment which is a good incentive to check the tax position to date of death carefully!

The second aspect of Self-Assessment is the income tax from date of death to the date that everything has been paid out or distributed in an estate (the administration period). In that period assets may produce income or be sold and depending on amount and type of income and the gain or loss on the asset sold a Tax Return may be needed. HM Revenue and Customs require certain estates to be registered for Self-Assessment and they call these estates Complex Estates. A Complex Estate is one which has assets of over £2.5 million or where assets are sold in any one tax year of over £500,000 or where the total income tax due over the whole administration period is over £10,000. If none of these apply, then HM Revenue and Customs should agree to deal with the income tax in the estate informally by letter. Once the estate is registered Tax Returns will be issued and it is important that these are submitted on time!

Please call us if you need any help or advice, 0800 84 94 101.