Interest on estate moneys

BMonroe77

I’m the executor for a relative’s estate. It’s now 6 months since probate was granted (9 months since date of death) and I am about to distribute the estate to the beneficiaries. The money from the estate has been sitting in a separate personal account belonging to me since probate was granted and has accrued several hundred pounds interest.

(1) Do I need to declare this interest to the inland revenue, or complete any other further tax return before distributing the estate? (the estate was well below the £325,000 inheritance tax threshold)

(2) As an unpaid executor, am I allowed to keep the interest that has been earned? The reason I ask is because I have read that professional executors (eg. solicitors) are not obliged to pay any interest on estates they manage so long as they are distributed within a year of death.

Jenniefour

OP - I don't know what the 'correct' answer is to either of your questions but in your shoes I would be divvying up the interest as per the instructions in the will re distribution of funds to residual beneficiaries. You did have the option of declining to be executor.

NordicNoir

BMonroe77 wrote: »

I’m the executor for a relative’s estate. It’s now 6 months since probate was granted (9 months since date of death) and I am about to distribute the estate to the beneficiaries. The money from the estate has been sitting in a separate personal account belonging to me since probate was granted and has accrued several hundred pounds interest.

(1) Do I need to declare this interest to the inland revenue, or complete any other further tax return before distributing the estate? (the estate was well below the £325,000 inheritance tax threshold)

(2) As an unpaid executor, am I allowed to keep the interest that has been earned? The reason I ask is because I have read that professional executors (eg. solicitors) are not obliged to pay any interest on estates they manage so long as they are distributed within a year of death.

1. Has the interest had any tax deducted? You do need to pay tax on any interest received. HMRC will probably deal with this informally rather than asking you to complete a Trust and Estates Return. Just write to them stating how much interest was received, in which tax years, any tax already deducted and they will let you know how much tax you owe.
2. No, you are not allowed to keep the interest, nice try though :rotfl:
The interest belongs to the residuary beneficiaries. Once you know the amount of tax paid, issue each beneficiary with a R185(Estate) showing them how much interest they have each received and how much tax has been suffered. It is then up to the beneficiaries to include the interest in their own tax affairs etc.

getmore4less

You should do 2 tax returns for the period of administration, HMRC may be happy with a letter with the amounts and any tax deducted at source.

That's what I sent for income to the estate they issued a refund and a demand without any further form filling.

When you distribute you include a tax credit for any tax paid by the estate.(many miss that step)

Yorkshireman99

BMonroe77 wrote: »

I’m the executor for a relative’s estate. It’s now 6 months since probate was granted (9 months since date of death) and I am about to distribute the estate to the beneficiaries. The money from the estate has been sitting in a separate personal account belonging to me since probate was granted and has accrued several hundred pounds interest.

(1) Do I need to declare this interest to the inland revenue, or complete any other further tax return before distributing the estate? (the estate was well below the £325,000 inheritance tax threshold)

(2) As an unpaid executor, am I allowed to keep the interest that has been earned? The reason I ask is because I have read that professional executors (eg. solicitors) are not obliged to pay any interest on estates they manage so long as they are distributed within a year of death.

Lay executors are not allowed to receive any payment for what they do. The interest is revenue of the estate and must be declared to HMR&C as such. See message #3 above.

NordicNoir

BMonroe77 wrote: »

....The reason I ask is because I have read that professional executors (eg. solicitors) are not obliged to pay any interest on estates they manage so long as they are distributed within a year of death.

This relates to interest payable, to the beneficiaries, if the executor is slow in actually distributing the estate.It does not mean interest that that estate is earning from a third party.

Crabapple

Solicitors are definitely not allowed to keep interest that accrues on funds held.

You may be confusing this with a requirement to add interest to a legacy of a specific sum of money if not paid within a year.

It's due to the beneficiaries and the posts above cover how to deal with it. Usually a letter to HMRC is enough but will depend how much money and how complex.