Savings interest while waiting for probate

coconurtaler

My sisters and I are sorting our mother's estate but have not quite yet applied for probate. We have started collecting funds from closed accounts into a new account in my name. There is an option to have saving pots on this account to accrue interest but is this going to be more trouble than it is worth? Should I just leave all the funds in the current account with no interest?
There will be around £35k excluding the house.

SnowMan

If you do earn interest on it, then this guide tells you how the tax on savings interest works for the estate

https://www.litrg.org.uk/tax-guides/bereavement/how-does-personal-representative-deal-income-and-capital-gains-arising-after

Basically if the savings interest totals less than £100 you don't need to tell HMRC.

If it is say £500 interest then the estate pays £100 tax to HMRC (500 x 20%). Note the estate doesn't get any £1,000 personal savings allowance.

You then give the beneficiaries details of the interest and tax paid, you can get the 'statement of income from estates form' to do this here (you need to move through to the 'distributing the estate' bit where there is a link to that form)

https://www.gov.uk/probate-estate/reporting-the-estate

The beneficiaries then include that savings interest and tax paid when dealing with their own personal tax, although not until they have received an estate distribution at least equal to the interest paid. For example if they are non-taxpayers or have unused personal savings allowance themselves they can reclaim their share of the tax on interest the estate has paid.

Personally I think it looks fairly easy to do. On £35,000 at say 4% interest there's just over £100 interest a month potentially to be earned

Another option if you are executors under the will is to consider making an interim distribution from the money you have collected assuming all the beneficiaries are on board with things and you are fairly sure of what the estate consists of. That way the estate earns less interest or loses less potential interest and the money becomes the beneficiaries money and they can earn interest on it as their own money. I don't see any need to wait for probate, as that is just needed for organisations that require probate to release funds and for the house sale. Although you do need to make sure there is enough money left in the executor account to pay estate liabilities and ongoing house maintenance costs etc.

Keep_pedalling

You could always make an interim distribution with some of it keeping enough back to cover estate expenses.