When someone dies, probably the last thing that grieving relatives want to think about is the taxman. However, if you have been named as an executor in the deceased person’s will, then you will have to turn your attention to the obligations that being an executor impose on you with regard to HMRC.
When someone dies without a will, then somebody, normally a close relative will have to take on the role of administrator. The administrator will have the same responsibilities as an executor which are to obtain probate and to report on the value of the deceased’s estate to HMRC.
Both the executor and the administrator have to apply to the local office of the Probate Registry for a Grant of Representation in the case of an executor and Letters of Administration for an administrator. These are legal documents that allow the administrator or executor to deal with all of the financial affairs of the deceased person’s estate and to distribute any legacies that have been laid out in the will.
As part of applying for probate, you also need to make a report to HMRC about the value of the estate. To do this you must collect all the information about assets which include everything that the estate encompasses such as property, vehicles, cash in the bank or building society and personal possessions such as jewellery, artworks and antiques. HMRC advise that an executor should have items professionally assessed if they have a value of more than £500.
After calculating the overall value of the estate, you then need to subtract all the liabilities such as legally enforceable loans, utility bills and any other outstanding payments that need to be made. You are allowed to include funeral costs in the liabilities although not professional costs associated with getting probate such as solicitor’s fees. You can use the assets of the estate to pay professional fees but you cannot deduct those from the value of the estate that you report to HMRC.
It’s very important to make an accurate assessment of the value of the estate as HMRC can reject your valuation if they think it is wrong and this can substantially delay the granting of probate.
When you apply to the Probate Registry, you must include the figures that you have submitted to HMRC. You will also need to make a payment on account to HMRC before probate will be granted if the state is due to pay tax.
The threshold for inheritance tax is £325,000 and the rate of tax for assets over that amount is 40%, although this can be reduced to 36% if 10% or more of the value of the estate has been donated to charity. Inheritance tax must be paid by the end of the sixth month after the person has died and failure to pay will attract interest charges.