HMRC: Final winding up of Estate

Misha96

Hello All,

I wrote to HMRC in July 2023, several months after my uncle death. I reported  interest from taxable savings accounts and expected to hear back from them within a reasonable time.

This morning, I received two letters from HMRC. The first included a cheque reimbursing income tax for 2022-23. The second dealt with the untaxed interest mentioned above. HMRC will write to me again about how to pay it back at 20%.

I am the sole executor and the major beneficiary. The tardiness of HMRC has distressed me and I’m wondering whether I’ve gone about things the wrong way. My uncle held three cash ISAs. Do I owe HMRC 20% of the interest earned from these tax-free accounts for the period between his death and Grant of Probate? All accounts were frozen within a week of my uncle's death.

Thanks for advice.

Misha

sheslookinhot

Others may know better, but if the account was frozen I don’t think interest would apply after that date.

Misha96

Interest on ISAs and taxed accounts continues to accumulate because they are frozen not closed. Hence, I reported the additional interest between death and probate on my uncle's taxable accounts. I owe HMRC 20% of the interest earned during this period because no tax allowances are given. It's the ISA's I'm now querying. 

Runner_Duck

HMRC are not quick to finalise the deceased's tax affairs.  It took nearly 20 months to sort out Mum's tax and that was not a complicated estate. Currently ISAs remain tax free for 3 years after death. If there is > £500 of interest from non ISA accounts, you should report this to HMRC and the estate will pay 20% tax.  Less than £500 then no tax is owed.  There is a section on this on the gov.uk website and it tells you how to report and pay etc.

Misha96

Runner_Duck said:

HMRC are not quick to finalise the deceased's tax affairs.  It took nearly 20 months to sort out Mum's tax and that was not a complicated estate. Currently ISAs remain tax free for 3 years after death. If there is > £500 of interest from non ISA accounts, you should report this to HMRC and the estate will pay 20% tax.  Less than £500 then no tax is owed.  There is a section on this on the gov.uk website and it tells you how to report and pay etc.

Thanks @Runner_Duck,

I gave HMRC an accurate report regarding taxable accounts and shall await their bill!

The government website appears to advise that the tax-free status of a deceased person’s ISA ends with the executor closes it (in this case following Grant of Probate) or when the administration of the estate concludes”. So, does this confirm that no tax is due on my uncle’s ISA interest?

As far as the figure of £500.00 on taxable accounts is concerned, id £500 deduced from the taxable sum? For example would £1500 be reduced to £1000 and then taxed at £20%.

Runner_Duck

I'm not an expert but if your uncle died in 2023 and the ISAs were closed after probate I'd say no tax will need to be paid.  Regarding the £500, from the bill we received there is no tax free amount for an estate so you pay tax on the whole amount, so in your example of £1500 you'd owe £300 tax. 

Misha96

Thanks @Runner_Duck

Newly_retired

It is possible to transfer an ISA to the spouse using the special allowance, for up to three years, which suggests that it can remain as a tax free ISA for up to 3 years. I tranferred my husband's within six months. There was no tax to pay. 

Misha96

Newly_retired said:

It is possible to transfer an ISA to the spouse using the special allowance, for up to three years, which suggests that it can remain as a tax free ISA for up to 3 years. I tranferred my husband's within six months. There was no tax to pay. 

Thanks but my uncle was a childless widower.