Executor's Tax on Savings

WobagUK

My mother is acting as an executor will be shortly receiving the proceeds from the sale of a relatives house, and will be sitting on the money for 6 months while the solicitor, who is managing the rest of the estate sits on the bank savings for 6 months to protect themselves from unexpected claims.

After this she will be distributing the combined amount to the beneficiaries, however the house money will have accrued interest.

She is planning on just dividing up however much the end total is, including interest

Is she liable to pay income tax on the interest, or not as it is not 'her money' and she is just 'holding it'.

Dazed_and_C0nfused

WobagUK said:

My mother is acting as an executor will be shortly receiving the proceeds from the sale of a relatives house, and will be sitting on the money for 6 months while the solicitor, who is managing the rest of the estate sits on the bank savings for 6 months to protect themselves from unexpected claims.

After this she will be distributing the combined amount to the beneficiaries, however the house money will have accrued interest.

She is planning on just dividing up however much the end total is.

Is she liable to pay income tax on the interest, or not as it is not 'her money' and she is just 'holding it'.

"She" won't be.  But she will in her role as executor.

20% tax needs to be paid on all the interest received in the period of administration.

WobagUK

Dazed_and_C0nfused said:

20% tax needs to be paid on all the interest received in the period of administration.

Silly question then.

How?

Right now, she has the appropriate amount of tax deducted from her private pension to account for the fact that her state pension alone puts her over the tax free allowance.

Is there some way of doing a one off declaration without having to get into full self assessment?

Hoenir

The money is the deceased's estate until distributed. The interest is taxable as the Estate's.

Never wise to mix with your own in case something unfortunate happens. 

Is there any need to sit on the money for 6 months? Might as well make an interim distribution. Presumably the solicitor is holding sufficient to settle any remaining liabilities. 

[Deleted User]

WobagUK said:

Dazed_and_C0nfused said:

20% tax needs to be paid on all the interest received in the period of administration.

Silly question then.

How?

Right now, she has the appropriate amount of tax deducted from her private pension to account for the fact that her state pension alone puts her over the tax free allowance.

Is there some way of doing a one off declaration without having to get into full self assessment?

It will be a liability of the estate. As said above, your mother has no liability. 

One would hope that the solicitor will be completing the tax return for the period of administration. 

Dazed_and_C0nfused

WobagUK said:

Dazed_and_C0nfused said:

20% tax needs to be paid on all the interest received in the period of administration.

Silly question then.

How?

Right now, she has the appropriate amount of tax deducted from her private pension to account for the fact that her state pension alone puts her over the tax free allowance.

Is there some way of doing a one off declaration without having to get into full self assessment?

I don't think you are grasping the fact that this isn't her income.  

Anyway, info is available here.  And there is actually a lower limit where no tax needs to be paid by the executor.

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

WobagUK

Hoenir said:

Is there any need to sit on the money for 6 months? Might as well make an interim distribution. Presumably the solicitor is holding sufficient to settle any remaining liabilities. 

Heres the thing, initially the solicitor was going to handle the whole thing, but due to being not exactly 'impressive' in service, managing the sale was taken out of their hands. They didnt object.

Its the solicitors policy to retain estate proceeds for 6 months (pending any mystery relatives make a claim), then provide to executor.  They havent said we CANT distribute the house money immediately, but dont want to get caught out by them asking for it back after it got distributed.

I can see them saying it was implicit in the contract that all proceeds of the estate are to be held by them, but it would be a moot point if the proceeds were in a fixted term account for 6 months.

Damn sure if we did let them hold it for 6 months, we wouldnt get it back with 5% interest.

Keep_pedalling

If the solicitor is holding some back from the rest of the estate. why can’t she just make interim payments with the proceeds from the house sale? One of the problems with handing over control to a solicitor is they will do this in all cases because they have no knowledge of the deceased person’s finances, but unless your mother has any reason to think that a large creditor is likely to crawl out of the woodwork then it should be safe to distribute the proceeds of the sale. 

Notepad_Phil

WobagUK said:

Dazed_and_C0nfused said:

20% tax needs to be paid on all the interest received in the period of administration.

Silly question then.

How?

Right now, she has the appropriate amount of tax deducted from her private pension to account for the fact that her state pension alone puts her over the tax free allowance.

Is there some way of doing a one off declaration without having to get into full self assessment?

Take a thorough look at https://www.gov.uk/probate-estate/reporting-the-estate and https://www.litrg.org.uk/tax-nic/trusts-and-estates/bereavement-tax-issues-death/tax-income-and-gains-after-death for details on what duties fall on both the executor and the beneficiaries of any estate income.

Grumpy_chap

WobagUK said:

would be a moot point if the proceeds were in a fixted term account for 6 months.

Damn sure if we did let them hold it for 6 months, we wouldnt get it back with 5% interest.

That account should not be a personal account in your Mother's name.
It should be an Executor's account held on behalf of the deceased's estate.

That, then, makes it clear that the income arising is taxed as a liability of the deceased's estate and that the money and income is definitely not your Mother's.

It also protects everyone in case the unforeseen happens making your Mother unable to continue with the finalisation of the Estate.

xylophone

You say that your mother is "acting" as executor.

Is she  the executor named in the will of the deceased?

Or is the solicitor the executor?

If she is not the executor then I do not see how she can have an executor's account.

If she is the executor and is handling a large sum which is to be distributed to multiple beneficiaries, then she should open an

executor's account (which will not pay interest) and make the distributions from that.