I have been appointed as executor - when does this start?
As an executor or personal representative you may consider that your responsibilities start at the date of death.
As an executor it is your responsibility to collate information and details of the deceased's assets and liabilities at the date of death, and declare them to HM Revenue and Customs for all taxes, not just Inheritance Tax.
That doesn't sound too difficult?
If they were registered for self-assessment you may be asked to complete a return for the period to date of death, and in some cases the year before that as well. If they were well organised that may not be too difficult. The fun starts when their records are disorganised, sparse or even non-existent.
And if they are not registered?
Then you need to consider whether they should have been. If their income is straight forward - State pension, other pensions, some bank interest, the likelihood is that no return is required and HMRC will issue a tax calculation identifying whether or not there is a tax liability or repayment.
I have just discovered that after they went into care (8 years ago) their house has been rented out to pay the care fees. I don't think any tax returns have been filed. That is not taxable is it, because it all went to the care home?
Unfortunately yes it is taxable.
Undeclared rental income has been a focus for HMRC for many years. They set up the Let Property Campaign disclosure facility to enable taxpayers to bring their tax affairs up to date and disclose and unreported rental income and expenses. As an executor it is your responsibility to make a disclosure on behalf of the deceased under this campaign.
You will need to identify the income and expenses for each tax year, calculate the tax and make a formal offer, before paying any tax and interest due.
I will need to pay interest?
HMRC will charge you interest at 3.25 per cent on any tax paid late. This is not a penalty, but commercial restitution,’ as the deceased had the use of money which was owed to HMRC.
As the executor, you won’t normally be liable for penalties for any irregularities in their tax affairs.
In theory, HMRC can go back 20 years under the Let Property Campaign. However, for a deceased taxpayer, this will probably be limited to the ‘in-date’ tax years, which will be the four previous tax years.
I don't think I can do this on my own?
If you at all unsure on how to proceed or how to calculate the rental income and tax due you should seek professional advice.
At Moore we have experience of preparing Let Property Campaign disclosures and have worked closely with solicitors, assisting them with tax arising on deceased's estates including undeclared rental income. We can also assist in the preparation of self-assessment returns to the date of death and any tax liabilities arising in the Period of Administration after death.
For more information please contact your local
Moore office.