Inheritance, and child tax credit renewal

Savvy_Sue

As co-executor of mum's estate, I've just had this question thrown my way from one of the beneficiaries:

'I’m trying to complete our Child Tax Credits renewal form ... one of the questions under declaring income is “Income from trusts, settlements and estates”. Just to double check an inheritance doesn’t count, I phoned....after the usual being on hold for 45 mins before being told I’d been put through to the wrong department, I tried again and a lovely lady told me she had no idea and I need to ask the executors/lawyers if any of the estate would be considered taxable.'

So, no IHT was due, and even if it had been it would have been paid by the estate.

All the money was / will be distributed direct to the beneficiaries, there are no trusts involved.

There MIGHT be some CGT due on the sale of shares, but that would be due from the estate before distribution, wouldn't it?

So I can't see that there is anything to declare on the tax credits form.

Can anyone spot a flaw in that answer? I will get some professional advice too, but you lot will probably come back faster ...

getmore4less

I think the key here is INCOME.

So what is happening to the income during admin(some potential sources)

Interest on any moneys held on deposit
Dividends on any shares(need to check if there a difference between XD and those that came during admin).
rents from properties.
...

non taxable income like premium bond wins should be treated the same as if you owned them.

Savvy_Sue

getmore4less wrote: »

I think the key here is INCOME.

So what is happening to the income during admin(some potential sources)

Interest on any moneys held on deposit

Prior to distribution, it's all being held in a non-interest bearing account, because we (the two executors) are not planning on holding onto it for long - we've dished most of it it out as it came in, and cheques from the house sale are being given out next week (at the beneficiaries' request!)

What each beneficiary has done with it, I couldn't say!

getmore4less wrote: »

Dividends on any shares(need to check if there a difference between XD and those that came during admin).

I'm not sure what XD is, but again, they have all gone into the Exec account and been divvied up promptly. And the shares themselves are now all sold, not being distributed as shares.

getmore4less wrote: »

rents from properties.
...

None: we left the house empty until it was sold.

getmore4less wrote: »

non taxable income like premium bond wins should be treated the same as if you owned them.

Who is 'you' in that sentence? There were two or three small wins, we've now sold the bonds and again, distributed the proceeds.

So all the beneficiaries are seeing is money going into their bank accounts, to do with as they wish, as per the will - dish it out!

Does that help?

getmore4less

Shares

if there were dividends (XD are shares that declared the dividend at DOD but had yet to pay it) and they were shared out then they count as income for the benificiaries, dividends come with a tax credit so basic rate tax payers don't have to pay any more tax.

"You" as in any beneficiary that get any money that was generated as income in the estate.

This would be declared on the Tax return for the admin period and any tax paid by the estate becomes a tax credit for the beneficiary.

https://www.gov.uk/self-assessment-tax-returns/returns-for-someone-who-has-died
https://www.gov.uk/government/publications/self-assessment-trust-and-estate-tax-return-sa900

When we did our return HMRC were happy with a letter with details and did not require a full return.

Savvy_Sue

getmore4less wrote: »

Shares

if there were dividends (XD are shares that declared the dividend at DOD but had yet to pay it) and they were shared out then they count as income for the benificiaries, dividends come with a tax credit so basic rate tax payers don't have to pay any more tax.

"You" as in any beneficiary that get any money that was generated as income in the estate.

This would be declared on the Tax return for the admin period and any tax paid by the estate becomes a tax credit for the beneficiary.

https://www.gov.uk/self-assessment-tax-returns/returns-for-someone-who-has-died
https://www.gov.uk/government/publications/self-assessment-trust-and-estate-tax-return-sa900

When we did our return HMRC were happy with a letter with details and did not require a full return.

I think I understand. I don't think the income tax / CGT tax due is going to be anywhere near £10,000: I can't see where any tax is due atm. But we need to look at the dividends: that's my co-executor's department ...

getmore4less

AIUI the issue starts if any benificiary is a 40% taxpayer.

I remember some complications that XD get taxed multiple times.

XD are included in the capital assets for IHT and can get taxed as income as well.

I have no idea how keen HMRC get with tracking this stuff when the taxes involved are tiny.

konark

I’m trying to complete our Child Tax Credits renewal form

AIUI the issue starts if any benificiary is a 40% taxpayer.

40% tax payers don't get child tax credit.

Any inheritance from the estate is capital not income., so will not affect CTC.

Any income/interest/ dividends/rents arising during probate is estate income not your personal income. The estate has its own tax allowance.

getmore4less

When distributed it becomes personal income with any tax credit for tax paid.

There is no personal allowance on income for estate,
(there is a CGT allowance)

One thiing to watch is if there was any income paid during admin within an ISA or an account where income was paid gross that won't have been taxed sometime it happens before the notifications get acted on.


edit: forgot there needs to be a return for each tax year allthough if done by a letter initialy covering the full period and it is simple then HMRC may not need the full returns.

edit: the relevent forms for the income are R185
https://www.gov.uk/government/publications/trusts-and-estates-statement-of-income-from-estates-r185-estate-income

edit: note the complication that if there is income in the estate a distribution of assets can mean that there is income for the beneficiary.

(I suspect many people that admin estates might never get this far)

Savvy_Sue

getmore4less wrote: »

AIUI the issue starts if any benificiary is a 40% taxpayer.

I remember some complications that XD get taxed multiple times.

XD are included in the capital assets for IHT and can get taxed as income as well.

I have no idea how keen HMRC get with tracking this stuff when the taxes involved are tiny.

AFAIK none of us (the beneficiaries) are 40% taxpayers - I think we've raised this question with them for some other reason. One of our partners might be, that's presumably irrelevant.

konark wrote: »

40% tax payers don't get child tax credit.

Any inheritance from the estate is capital not income., so will not affect CTC.

Any income/interest/ dividends/rents arising during probate is estate income not your personal income. The estate has its own tax allowance.

I've remembered two other reasons why money has come into the Exec account: sales of personal effects at auction, sub £1000, and refunds from utility companies. I'm presuming neither of these would be taxable.

getmore4less wrote: »

When distributed it becomes personal income with any tax credit for tax paid.

There is no personal allowance on income for estate,
(there is a CGT allowance)

One thiing to watch is if there was any income paid during admin within an ISA or an account where income was paid gross that won't have been taxed sometime it happens before the notifications get acted on.


edit: forgot there needs to be a return for each tax year allthough if done by a letter initialy covering the full period and it is simple then HMRC may not need the full returns.

edit: the relevent forms for the income are R185
https://www.gov.uk/government/publications/trusts-and-estates-statement-of-income-from-estates-r185-estate-income

edit: note the complication that if there is income in the estate a distribution of assets can mean that there is income for the beneficiary.

(I suspect many people that admin estates might never get this far)

I can see this is all going to have to go to the accountant once my co-exec has updated the income spreadsheet from the sales of shares!

getmore4less

I think what happens in practice in a lot of cases where the income is relatively low and all taxed in the estate the moneys are just distributed.

Any beneficiary with spare personal allowance or 40% should do a bit more.

ON the potential CGT on shares, would any beneficiary be interested in acquiring them at the probate value. to avoid the CGT at this time.

Quite a gain if they have increased in value by over the allowance(unless other gains also)

Savvy_Sue

getmore4less wrote: »

I think what happens in practice in a lot of cases where the income is relatively low and all taxed in the estate the moneys are just distributed.

Indeed.

getmore4less wrote: »

Any beneficiary with spare personal allowance or 40% should do a bit more.

Again, I don't think anyone is in either category. But I will double check.

getmore4less wrote: »

ON the potential CGT on shares, would any beneficiary be interested in acquiring them at the probate value. to avoid the CGT at this time.

Quite a gain if they have increased in value by over the allowance(unless other gains also)

We discussed the shares but no-one wanted them in the end. And honestly, I don't think there is going to be enough of a gain for it to matter.

Do appreciate all the help.