Tax on inheritance

gamston

thanks for that
don't think there will be any capital gains to pay on the difference from the date my dad died to now,as they were unit trusts they will not have gone up that much

oldwiring

Confused_Jo wrote:

My OH's gran died back in March and the probate of her estate is plodding along. He is due to inherit £5k, which I have convinced him would be best used to pay off part of the mortgage.

If he didnt declare it on a tax return to the IR how would they know he had it and would be liable for tax if he did declare it?
The will was written quite a while ago and his grans estate is just within the inheritance tax limits.

Thanks
jo

My under standing is that after deduction of any IHT from the estate, which has to be paid by the Personal Representative(s)aka Exor(s) or Admin(s), specific gifts are paid first and then general gifts to, I think the term, is remaindermen. Neither the specifoc nor the gneral gifts are income. However the post death income of the estate does have to be declared on the appropraite type of Form 185 and Certicates of Tax Deducted have to be issued to each beneficiary.

sasparillo

Hi Merrett1,

You seem to be confusing the beneficiary's Income Tax Return and the deceased person's Income Tax Return.

An Income Tax Return is drawn up for the deceased person for whatever part of the tax year that person was still alive, from 6th April to date of death, and it is taken out of the Estate as a debt.

You seem to to be talking about the deceased person's Income Tax Return, not the beneficiary's Income Tax Return.

In any case, at one time no interest was paid on current accounts, although the Bank could open a special account for a deceased person's assets. But when the money passed to the beneficiary, it still had to be counted as income on the beneficiary's Income Tax Return, although from what everyone has been telling me, the Inland Revenue no longer demands this.

In 1990 the Income Tax Return had a section

"Payments from settlements and estates (gross amount)". The Tax Form Guide/Notes stated

"Give the name of the settlement or the name of the deceased person. Enter details of income or capital from a settlement or transfer that is to be treated as your income".

In 1988-1989 there was a section headed

"Income: 6 April 1988 to 5 April 1989"

"Payments from estates include receipts from the estates of deceased persons in Administration Self Wife"

It actually says "See Note"

The Tax Return Guide/Notes for 1988-89 says

"Payment from estates

Income from estate of deceased person

Enter the name of the deceased person, the date of death, and the name and address of the executor or personal representative administering the estate. Say what type of interest you have in the estate. Special tax rules apply while a deceased person's estate is being administered. Generally, if you are life tenant or life renter, enter the sums paid during or payable at the administration period. If you are absolutely entitled to the residue of the estate, enter your share of the income to the extent that you have received payments equal to that income. [my italics]

If the personal representative has given you an income tax certificate, enter the amount of gross income shown on the certificate. Please ask me if you need further information.

self wife"

So it's clear it was once included in the income tax return. Apparently it's now changed and that is why I was asking when it all changed. Does anyone know when it changed?

It was also why I commented that it seems strange not to tax inherited wealth but to tax heavily hard earned earnings. And I could see why there could be a big black hole in tax revenues which has been offloaded on to local taxes.

These "Tax Havens" all seem very curious affairs since other countries feel impelled to tax their residents heavily. The "Tax Havens" seem to be small countries yet they still seem able to finance themselves without the kinds of taxes imposed by other countries. Which is why I was asking this: how are these Tax Havens were set up in a way that enables them to survive?

Merrett1 wrote:

Sasparillo

The capital you receive from the estate is not taxable and has never been taxable as income. Only inheritance tax is payable by the individual who has passed away on their estate.

Payments from estates are where the capital is waiting to be distributed to the beneficiaries of the will and it is sitting in a bank account accumulating interest. The interest is the income part that needs to be declared. Also happens for dividends received on shares whilst they are waiting to be distributed.

This is still on tax returns today. You should expect this to be declared to you on a R185 form by the executor if there is any.

On the other part you mentioned, tax havens are not set up they are just jurisdictions that have income tax rates lower than the UK. They are very hard to beneficial for the average joe as it takes a lot of tax planning to make them work for you. Especially if you are what is known as UK domiciled e.g. your mother and father come from the UK and you think yourself to be British.

hjd

You need to read those carefully. The 1990 return said "Enter details of income or capital from a settlement or transfer that is to be treated as your income" - there were (and still are) special rules on this - you only had to enter amounts that were treated as income, not legacies.

Again in 1988/89 it states income from the estate. That is not the same as a legacy - just (as has been explained) income arising which is paid over as such. The bit you quote in italics again only refers to income, not the capital legacy.
Legacies come from already taxed funds and no further tax is payable on them. If you spend the legacy then that is it. If you put the legacy in the building society then any interest from the building society is taxable in the normal way - you don't keep separate records of income from different sources.

Merrett1

I definitely mean the beneficiaries tax return. I think that hjd has explained this point well. Interest may not have been payable on current accounts a few years back but dividends and savings accounts still did.

You are correct that a tax return is due for someone who has passed away from the 6 April to date of death but the banks and companies are not told immediately of this and therefore if interest or a dividend is paid on this account after that date it will form income for the beneficiary.

The phrase highlighted in italics only refers to the income because the capital from an estate does not need to be included on a tax return. If you are absolutley entitled to the residue of the estate any income received will be yours as you will be entitled to all of the capital of the estate.

This is still the same today.

sasparillo

I'm wondering how old you are and whether you actually dealt with tax affairs at the time we are talking about - or whether you are both Dukes?!!! As I have said the Royals and the aristos have always messed up the system because they have been allowed by the Inland Revenue to keep up the handing over of houses etc to the eldest sons and not recognizing the surviving wife except as "a dowager" etc which has never fitted in with a modern democratic taxation set up.

For the ordinary punter's estate, everything had to be realized into money after death to be distributed to the ordinary punter beneficiaries who still had to put the amount of money they received from the estate under "Payments from Estates" on their Income Tax form.

From what I can tell from what you say, surely things are now an unholy mess with the compromises of the feudal/aristocratic system mixed in with the so-called "house owning democracy" (they're even talking in the open now about handing on mortgages after death!)? Surely it all doesn't make sense and has caused a big hole in income tax income which has been offloaded on to local taxes?

But at the same time I can see now why some people would allege that certain businessmen (and they do seem to be all men so far in the news) would be clamouring to give loans and then become peers. Because then surely they would be treated in the aristocratic section of the Inland Revenue or rather of HM - Her Majesty's - Customs and Revenue?

I vaguely remember that even Chequers was some kind of legacy from a will and that Lord Courtauld or one or several associated politicians had written wills which made personal legacies to Lord Courtauld and/or vice versa and Chequers was part of these arrangements. This was all at a time when the state tax authorities had begun to have an impact on the aristocracy and politicians were no longer all of the land owning aristocracy. Lloyd George famously being a case in point.

Going back to the 1980s and 1990s. The house was a chargeable asset which had to be disposed of and a capital gains computation made. Anybody who dealt with a dead person's estate at that time would know that.

The 1988-9 Tax Guide definitely says (I'm quoting verbatim and not paraphrasing in any way) under number 42 payments from estates

"During the period in which the estate of a deceased person is being administered, there are special tax rules for arriving at and calculating the income which is regarded as that of the persons entitled to an interest in the residue of the estate. In general if you are

* a life tenant (or life renter), you should enter the sums paid during or payable at the end of the administration period

* a person absolutely entitled to the residue, you should enter your share of the income to the extent that you have received payments (whether of capital or income) of an equivalent amount.

If you have received an income tax certificate from the personal representative, enter the amount of gross income shown on the certificate. If you require further information let me know."

martini99_2

sasparillo wrote:

Hi,

Your employer has also already been taxed on the money it pays out for your salary but you are still taxed for the money you receive. Incoming money is incoming money in the end.

Fraid not not Sas. The company pays tax on its net profit ie: after the deduction of allowable costs including employees' salaries.

sasparillo

Hi Marti,

I'm afraid Marti you've mixed up two separate things: expenses (which obviously aren't taxed because the money has had to be spent and is not part of profit and therefore an expense) and taxable profit.

Salaries are allowable expenses, just as self employed people have allowable expenses. Expenses are a separate issue. The company still has to have the money in the first place to pay the salaries. Somewhere along the line it must have been taxed.

There seems to be a lot of bandying of words here. We have to look at the realities of the situation, not the fiction made by words which are not the forms.

(BTW I remember one high-up boss within a company telling me quite seriously once that self employed workers his company took on didn't need to incorporate expenses in their fees because "they could claim them all back from the Inland Revenue"!!!)

But what I was asking was when did the Income Tax authorities stop asking people to put Payments from Estates on the Income Tax form?

Merrett1

Sasparillo

The legislation that deals with this question is the Income and Taxes Act 1988 Part XVI Estates of deceased persons in course of administration ss695-702.

This part of ICTA 88 is still in force today and therefore the rules have not changed since your tax return guide but this will, in due course, be subject to the tax law rewrite.

If income is distributed to the person absolutley entitled to the residue but some of the actual income received by the estate in the year was used by the personal representatives for expenses, the beneficiary will have to be paid some of the income out of the capital which is to be treated like income.

Although it is capital that is being paid, it is to be treated as income. This is the only reason there is a mention of this in the tax return guide.

sasparillo

Hi,

If the legislation has not changed that the way it is interpreted must have changed. I know for a fact that beneficiaries during the 1980s and 1990s were told that they had to include any money from estates on their income tax return. If this is wrong, then a lot of people are owed a lot of money by the Inland Revenue.