Interest bearing accounts for estate funds

Snuggles · 24 October 2014 at 2:20PM

Hi,
I am executor for an estate and have opened an executors account which does not pay any interest (which seems to be the case with most such accounts).

I am intending to make an interim distribution of the deceased's cash assets to the beneficiaries but will be keeping a significant portion back in order to cover any bills and essential maintenance costs relating to the deceased's property (which is for sale), as well as the return of overpayments made by DWP which they have not yet asked for (they seem to take forever).

Given that I may be holding this money for some time, I thought I should look into opening a second interest bearing account. Does anyone have any experience of this and how it is done? Would it follow the same sort of naming format as a standard execs account, or would I have to open it in my own name? (I am aware that any interest earned would be treated as estate income and I would need to complete form R185 for each beneficiary).

I am asking on here first as when I was trying to open an execs account I found it so difficult to find anyone in either my own bank or the deceased's who knew anything about them, it was a very trying experience which is ridiculous given how common it must be to need one.

PippiShortsock · 24 October 2014 at 3:29PM

Sorry, I don't know whether you can get an interest-paying executor's account. I doubt it though given, as you say, how difficult it is to get a basic one. You can put the cash in an account in your name instead, as long as you're keeping scrupulous accounts, but I suspect the interest earned would not be sufficient to warrant doing something which could lead to criticism from the beneficiaries later on.

IGNORE THE FOLLOWING:
You don't need R185 forms for the beneficiaries. The estate is a totally separate tax entity with its own tax allowances and liability for income, capital gains and inheritance tax. The only way the beneficiaries' tax status enters into it is if you formally apportion any of the assets (e.g. house or shares) prior to their sale by you as bare trustee rather than executor, or if one or more of them is a charity (which has an impact on inheritance tax allowances and rates).

MichelleUK · 24 October 2014 at 5:34PM

PippiShortsock wrote: »

You don't need R185 forms for the beneficiaries. The estate is a totally separate tax entity with its own tax allowances and liability for income, capital gains and inheritance tax. The only way the beneficiaries' tax status enters into it is if you formally apportion any of the assets (e.g. house or shares) prior to their sale by you as bare trustee rather than executor, or if one or more of them is a charity (which has an impact on inheritance tax allowances and rates).

This is not quite correct.

The estate does not have any tax allowance for income tax but it does for capital gains tax. Any income (eg. interest, dividends) that the executors receive (for the residual estate) during the administration period must be shown on R185's for the residual beneficiaries. You should also include any interest/dividends that were included on the IHT forms that were accrued at the date of death but had not been paid over to the deceased at that time.

The estate should include the income on its own tax return (if one is requested by HMRC) and then the share for each beneficiary should be included on R185's. The tax that has been deducted so far is only at basic rate, higher rate payers will then have to pay their higher rate on the figures shown on the R185.

PippiShortsock · 24 October 2014 at 5:41PM

MichelleUK wrote: »

This is not quite correct.

The estate does not have any tax allowance for income tax but it does for capital gains tax. Any income (eg. interest, dividends) that the executors receive (for the residual estate) during the administration period must be shown on R185's for the residual beneficiaries. You should also include any interest/dividends that were included on the IHT forms that were accrued at the date of death but had not been paid over to the deceased at that time.

The estate should include the income on its own tax return (if one is requested by HMRC) and then the share for each beneficiary should be included on R185's. The tax that has been deducted so far is only at basic rate, higher rate payers will then have to pay their higher rate on the figures shown on the R185.

If this is correct, then my solicitor has been severely negligent. Could you point me to the HMRC page which says this applies to estates in probate as well as trusts as the R185 only refers to trusts? As I understand it the two are used interchangeably informally but are legally distinct.

Crabapple · 24 October 2014 at 5:59PM

It definitely is the case that Estates income is dealt with as Trust income and R185s can be issued.

Practically, there are reasons they would not be. If the income is very small either in total or when divided by the beneficiaries, it may be a ponitless exercise. A beneficiary only really needs one if they have to complete SA returns, particularly if they are a higher-rate tax payer as tax will be due, or if they are a non-taxpayer or would not use their personal allowance for the year as they could then reclaim the tax deducted.

MichelleUK · 24 October 2014 at 6:00PM

PippiShortsock wrote: »

If this is correct, then my solicitor has been severely negligent. Could you point me to the HMRC page which says this applies to estates in probate as well as trusts as the R185 only refers to trusts? As I understand it the two are used interchangeably informally but are legally distinct.

There are several versions of the R185. This one is for estates:
http://www.hmrc.gov.uk/forms/r185_ei.pdf

Lack of allowance for personal representatives:
http://www.hmrc.gov.uk/manuals/tsemmanual/tsem7413.htm

Requirement to complete R185's for estates:
http://www.hmrc.gov.uk/manuals/tsemmanual/tsem7608.htm

I doubt that your solicitor has been negligent, it is probably just that you have misunderstood - it is a very complex subject. I am an accountant and it makes my head spin :rotfl:

PippiShortsock · 24 October 2014 at 6:18PM

Well I'm glad I posted rubbish advice as I wouldn't have found out about this otherwise. My solicitors have been painfully awful on several occasions during this process so I shouldn't be surprised.

In 2013/14 I was just nudging into higher rate tax. I wrote to HMRC and they adjusted my PAYE code this year to cover what I owed. Now I find out that I will be liable for higher rate tax on my share of the income received by my late uncle's estate in 2013/14. If I had known during 2013/14 that this was the case I would have put further money into my pension, thereby reducing my higher rate tax liability. As it is, what concerns me the most is that 31 October is the deadline for paper tax returns for 2013/14. Will I be penalised for not submitting information about this income by that date or am I panicking unnecessarily?

MichelleUK · 24 October 2014 at 6:39PM

PippiShortsock wrote: »

As it is, what concerns me the most is that 31 October is the deadline for paper tax returns for 2013/14. Will I be penalised for not submitting information about this income by that date or am I panicking unnecessarily?

The main thing is to get your main return in on time, otherwise you will most likely get a penalty for being late. As you probably know (as you mentioned paper returns) it is not possible to complete your tax return online via the HMRC site if you have trust/estate income.

If you expect to know the information before 31st January, you could submit over the internet using a 3rd party submission (eg. taxfiler.co.uk) but you do have to pay for this.

The other option is to send in your paper tax return by 31st October, put a note in the whitespace area about letting them know the final figures later and check the box to say that it includes estimates. That will stop the penalty and once you know your trust/estates income, you can contact HMRC with the details and they will recalculate your liability.

PippiShortsock · 24 October 2014 at 6:55PM

Thanks Michelle. You've been really helpful. Neither I, nor the other beneficiary this may affect, are registered for Self Assessment. I'll try and phone HMRC tomorrow to see if they can help.

MichelleUK · 24 October 2014 at 7:21PM

PippiShortsock wrote: »

Thanks Michelle. You've been really helpful. Neither I, nor the other beneficiary this may affect, are registered for Self Assessment. I'll try and phone HMRC tomorrow to see if they can help.

Ahh.... as you mentioned the paper return, I assumed that you already were required to send a return via self-assessment.

You will probably find that HMRC will be happy to take the income details over the phone/via letter, once you have them, as they do not like to put people into self-assessment unless they really need to. Then, if any more tax is due, they will issue a P800 calculation.

For your peace of mind, give them a call and do not worry....

Enjoy your weekend!

Interest bearing accounts for estate funds

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