Possible tax liability on late mother's investment

thetcutkid

Hi,

Sorry long post.

My sister and I are joint executors for my late mother's estate. Probate has been granted and all monies now received from banks and investments with one exception, a bond held with Aviva.

As with many companies these days, the organisation is so big that getting any sort of continuity with a problem is pretty much impossible, you speak to a different person each time you call, sometimes with differing advice or information and emails are never sent from the same person twice.

Mum actually had two different bonds held with them, the first, roughly twice the value of the outstanding one, was surrendered and cashed in earlier in the year. On speaking to the dept that dealt with that bond, no probate was required, they read out a very long statement to me over the phone, asking me to confirm verbally that there was a will in place, asked me to send in the death certificate and details of the bank account where we wanted the monies paid and I had the funds within 10 days.

The second bond is proving a little more complicated.

It's a different type of bond so a different dept is dealing with it and they wanted a grant of probate.  Once received, the grant of probate was scanned and sent off to them along with scans of the Will and details of where we wanted the monies paid.

A week or two passes and I then get an email from Aviva confirming my mothers segments of the bond are now held by my sister and I 'as executors'. The email goes onto say they need to do an electronic identity check on each of the 'new owners' in addition to certifying the 'new owners tax residence'.

The email also included a bond surrender form.

Now clearly I'm not an expert in financial instruments but based on what happened to the first bond, I really thought that with copies of the will and probate in place, all they would need to do was to transfer the value of the bond to my designated bank account.

I went back to them just to be crystal clear on the fact that we want to realise the cash value of the the bond as it forms part of Mum's estate and that we had no intention of taking over the investment ourselves.

In reply, they've come back and said that as my sister and I are named as executors in the grant of probate, we are now legally owners of my mother's segments of the bond and this means that any chargeable gain would go against the new owners.

It seems that, rather than encash the bond, they've put it into our names and we now have to complete a surrender form in order to obtain the funds which, in turn, then saddles us personally with a potential tax liability.

I know there are lots of different bonds, with lots of different rules but does that sound right - it can't be encashed directly from my mother's name and has to continue in the name(s) of a living person(s) until such time as they wish to surrender it?

Many thanks for your time.

tls123

Bonds that are held in trust continue with trustees but it doesn’t sound like that in this instance, Aviva asking for the Grant of probate for the second bond sounds normal as it’s possible the amount exceeding their policy for settling without probate, but continuing as your the executors sounds wrong. It would make more sense if it continues with you if your the life assured or trustees and therefore you would then need to surrender. Organisations run ID checks on executors as part of money regulations so that again sounds usual. I would question the ownership of the bond though as you said if the bond was solely owned by the deceased the ownership wouldn’t pass to you as executors. 

tls123

I meant to add with Aviva bonds on deceased they usually issue a chargeable event for the deceased tax return. I believe the tax implication wouldn’t be with you personally as executors but you still have to declare with HMRC. 

Linton

tls123 said:

I meant to add with Aviva bonds on deceased they usually issue a chargeable event for the deceased tax return. I believe the tax implication wouldn’t be with you personally as executors but you still have to declare with HMRC. 

Yes, the OP needs to very clear in their mind as to which hat, executor or beneficiary, they are wearing when talking to Aviva  . In this case they are acting as the representative of their mother’s estate, the “person” who wants to sell the bonds. Once the tax and other consequences of the sale are sorted they will be able to settle with the beneficiaries who may well be themselves.

thetcutkid

Thank you both for your replies.

I'm literally about to walk out the door to go away for the weekend but wanted to acknowledge your posts and will reply properly tomorrow.

thetcutkid

My sister and I are both joint executors and joint beneficiaries, Mum's estate is split 50/50 between us and at no point in the many communications I've had with Aviva over the last few months have I mentioned about being a beneficiary of her estate, although that's easy enough to assume of course but I've always spoken to them with an executor hat on (a good point @Linton )

The bond in question was set up years ago by a relative of my Mum in favour of her and three other people, all with an equal number of segments each, with my late father and an uncle named as trustees - I took my Dad's place as joint trustee after his passing.

Having thought about this a lot over the weekend, I bit the bullet and called Aviva again this morning to really try and clarify this once and for all. The advisor I spoke to actually seemed pretty clued up on this for a change and explained something that no one has mentioned in previous communications - the reason this can't be treated as a 'death claim' (her words) with Mum's segments being cashed in and the proceeds transferred to the executors is because the life assured named on the bond is still alive.

On the other bond Mum was the life assured so on her passing it was treated as a death claim which meant it was very straightforward cashing it in and transferring the funds.

The advisor confirmed that it's the names of my sister and I that now appear as bond owners of the segments and the only way for us to realise the cash value is by submitting a surrender form and we will both be personally liable for any tax due as a result of the chargeable event.

So that all seems pretty final really.

I must be honest and say that I never knew executors could become personally liable for tax on the deceased's investments, although what I intend to do is to keep some money back from the estate to cover any tax that maybe due in the same way funds from the estate will cover our incurred expenses such as death certificates and the submission of probate etc.

Linton

It seems you have an "onshore investment bond".  Tax on these can be complex coming under income tax rules raher than capital gains.  Also, I dont know how they fit in with inheritance tax. From what you have said it is also unclear to me whether you are now the hondholders as executors of the estate or in your own right.

Perhaps some other forum member with specialist knowledge can provide more insight or if the value is large it could be worth getting professional advice.

tls123

I believe what aviva are essentially saying is on this bond it is not immediately payable (death claim so doesn’t form the estate) as the bond continues with the last life assured whomever Aviva said in todays communication (but if you as trustee want to encash the bond now) you and your sister need to complete the surrender form and then you would have the tax implication. 

thetcutkid

It's called a Portfolio Step Down Option Bond apparently.

Based on my conversation this morning, we are bond holders in our own right, I double checked the actual wording with the advisor and 'executor' does not appear in the bond owner name(s) or details.

They haven't been able to confirm the current cash value, apparently that is worked out once the surrender form has been submitted but Mum got a yearly statement and the most recent one from 2023 shows a value just over £14k.

I think you're right @tls123 because in one of my very first conversations with them about 6 months ago, there was some confusion over whether we could actually cash in the segments at all but they came back to me and said as trustee I could as long as we obtained probate.

There was no mention then that it wasn't actually going to be quite that simple!

Thank you both for your input on this.

thetcutkid

You know, I should probably let this go and move on but Aviva really are the most infuriating company to deal with, akin to banging your head against a wall.

I really thought after Monday's conversation I'd clarified why the surrender has to happen in this way and the capacity in which we are named on the bond.

Yesterday afternoon I get another email from them.

This email is the second reply they've sent to an email I sent them two weeks ago querying the 'new owners' terminology and spelling out what we want to do with these segments.

This latest email contradicts what I was told on the phone on Monday - the email states and I quote:

'...You have legal ownership of those segments as bond owners in an Executor capacity and hold them for the benefit of the beneficiaries of your late mother’s estate in accordance with her will. The reference to ‘new owners’ in our email of xx/xxxx is in your capacity as Executors...'

So that's pretty unequivocal isn't it...we are named as bond owners but in our capacity as executors.

Is this going to make a big difference to anything, probably not, the only way we can realise the cash value of these segments is to complete a surrender form but wouldn't it be nice to have some continuity not to mention consistent advice. In 6 months of communications, either by phone or email, I've dealt with 10 different people and never the same person twice.

I really think something like a case manager type arrangement and certainly a dedicated bereavement team would really help.

Santander don't have the best reputation for customer service but their bereavement team have been very helpful and I've actually spoken to the same advisor three times.