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Christmas Season – income tax and estates 2

Have you ever wondered why there was no room at the inn; why in the Christmas nativity Mary and Joseph can’t find anywhere to stay in Bethlehem and just as Mary is about to give birth? Well, the answer is tax!

When Mary and Joseph arrived in Bethlehem, they found that everyone else whose family line came from Bethlehem had arrived too. They were all required to register for the Roman census, so they could be taxed. All the guest houses and spare rooms were taken! So, tradition says they ended up staying in a stable or cave where the family animals were sheltered. I wonder if the inhabitants of Bethlehem were taxed on all that extra rental income, they received that year!

Fast forward two thousand years and if you are administering an estate then rental income received by the deceased is something to look out for.

It may be that the person who has died has a long term buy to let property or properties or been letting their home out while they are in a care home and has been completing annual Self-Assessment Tax Returns. If this is the case, as the personal representative you will need to complete the rental accounts and Tax Return from 6 April to date of death. To do this you will need to have the rental statements for the period as well as details of any expenditure such as insurance or gas checks or repairs that can be claimed against the rental income. It may be that the person who has died has made income payments on account in the tax year towards the income tax and you will need a copy of their statement of account from HM Revenue and Customs to check these payments.

It may be that the person who has died has only fairly recently started to rent out a property. Maybe they have gone to live with family or to a care home and rather than sell their former home they have let it out. It may be that no-one had thought about or had advised them on the income tax consequences of doing this. This rental income is subject to income tax, even if it is mostly or all being used up to pay for care. They should have been completing Self-Assessment Tax Returns and paying the income tax due. If you are the personal representative and find that rental income is being received but tax returns have not been completed it is important to contact HM Revenue and Customs and let them know that you need to declare this income as part of dealing with the estate administration. They may deal with this informally by letter or they may issue Tax Returns for previous years to be completed.

If rental income continues to be received from the date of death, then that income is taxable in the estate during the administration period until the tenant leaves or the property is sold or transferred. It is important that rental accounts are kept showing the income and any details of expenditure. This income may be taxed by HM Revenue informally or in Tax Returns depending on if the estate is considered a Complex Estate or not by HM Revenue and Customs.

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