Beneficiary reporting interest to hmrc

Nettiemc3

Please can anyone shed some light on this subject for me 
my mother passed away 2 years ago ( my dad prior), a solicitor has dealt with the estate, but has told us that gross interest was received during the administration period and that we ( 3 beneficiaries 30% each and remaining10%shared between 3 more beneficiaries) are to report on our own tax returns forms, my questions are 
1) Is this from date of my mothers death (February )where interest from savings accounts were paid out after, but also paid out before going to probate six months later ( and a further 2/3 months for HMRC to acknowledge) she also had a few premium bond prizes as the account was kept open for the allowed year, included in the income account summary 
2) Are these amounts divided according to the beneficiaries percentages
3) Is there a threshold to notify HMRC with as some are retired, not working or working, but without previously doing self assessments 

The income accounts I’ve been shown give dates on some of the accounts where interest was paid but not all, just figures with a total income, I’m not very switched on with money matters and the solicitor was a bit vague getting any points across when I asked questions 
 sorry this is so long and I very much appreciate any help 

hjd

The solicitor should issue each beneficiary with a completed form R185 for each tax year and those are the figures which will be used on the beneficiary's own tax return. Income should be divided in the same ratio as the inheritances due.

Nettiemc3

Thank you for your reply
i certainly wasn’t given this form, just told to notify HMRC 
would you know if interest gained from an ISA should also be taken into consideration for income tax or would this be exempt
Many thanks 

hjd

ISA interest remains tax free after death until the account us closed (provided this does not take too long) and so does not need to be reported.
You need to ask for the R185 - a solicitor should know what they are doing!

Nettiemc3

Thank you
I've looked at the folder sent “estate accounts”, no official tax forms, just everything typed and listed 
the income accounts page lists residue assets which consist of closing gross interests ( the bulk of the interest would have accumulated prior to my mums passing) premium bond prizes and isa interest and a total figure  and told it had not been reported to HMRC and that the appropriate tax paid will need to be reported on the residuals beneficiaries own tax returns 
I did look a bit deeper online and possibly have to inform HMRC of a simple estate, maybe send them a letter with all the details and go from there, but very much appreciate all your help, thank you 

poseidon1

Nettiemc3 said:

Thank you
I've looked at the folder sent “estate accounts”, no official tax forms, just everything typed and listed 
the income accounts page lists residue assets which consist of closing gross interests ( the bulk of the interest would have accumulated prior to my mums passing) premium bond prizes and isa interest and a total figure  and told it had not been reported to HMRC and that the appropriate tax paid will need to be reported on the residuals beneficiaries own tax returns 
I did look a bit deeper online and possibly have to inform HMRC of a simple estate, maybe send them a letter with all the details and go from there, but very much appreciate all your help, thank you 

You say a solicitor dealt with the administration of the estate.

Clearly they did not do their job properly and were wholly unaware that estate untaxed income is taxable  ( in the first instance  ) on the estate, or completely forgot to do so prior to making final  distributions to the beneficiaries.

The procedure should have been that an estate tax return form SA 900 is prepared for the estate income ( and gains) for the relevant tax years  of estate income/gains receipts.

HMRC assess the income at the relevant basic or dividend rates of tax depending on the income sources. Estate pays the tax.

 On eventual distributions to beneficiaries and as pointed out by hjd a HMRC estate form  R 185 is supplied to each beneficiary by the administrator  to report the taxed trust income on their tax returns. If tney are non taxpayers they can obtain refunds; if basic rate payers and the estate income does not push them into higher rate tax then no further personal liability; if higher rate tax payers they have additional tax to pay thereon.

What is extremely irritating about this fiasco in the OPs case,  is this system for estate income tax reporting is not new. It has been the case for my entire career in the business since I started in 1976 and prior to!

Unfortunately, the solicitor by presumably distributing all estate income without reporting and  deducting income tax at source, has dumped the problem in the beneficiaries' lap which is unconscionable. However, short of the beneficiaries refunding the untaxed income element of their distributions back to the solicitor for them to do what they should have done in the first place, we are where we are.

Best case, the solicitor is forced to issue R 185s showing no tax deducted at estate level so beneficiaries at least have a recognisable piece of HMRC stationery to enable self assessment reporting in the correct way. 

Incidentally I accept that many people who now administer estates on a DIY basis without help from a professional are often unaware of estate tax reporting obligations. They have an excuse, a solicitor charging for their professional 'expertise' does not. 

Newly_retired

For low value estates - From gov.uk

From 6 April 2024, if the estate’s income from any sources is less than £500, you do not need to report the estate to HMRC.

The £500 tax-free amount applies: 

• for every tax year of the administration period, but you cannot carry over unused amounts from one year to the next
• to all types of income, except ISAs, which continue to be exempt from Income Tax or Capital Gains until the estate is closed or up to 3 years after the person’s death

badmemory

Maybe I missed it but was the solicitor the sole executor of the estate?  If he was then I am sure the beneficiaries owe nothing & he is liable for it all.  This is not the case if he was employed as executor unfortunately.  At least you know who not to employ if you need a solicitor.

mybestattempt

The position for reporting estate income of £500 or less has indeed changed with effect from 6 April 2024 and the form R185 appropriately updated.

If I understand it correctly the notes for the personal representative on the new version of the R185 says that if the personal representative did not pay tax on the estate income because it was within the £500 tax free limit then that income is not taxable on the beneficiary and not included on the R185. 

The OP hasn't said what the amount of the estate income is but the administration appears to include 3 tax years if the late mother died in early 2023.

Also it isn't clear whether the solicitor was executor or whether they are passing on the estate income details to the executor(s) for them to make the necessary reports to HMRC.

It seems to me that the estate income for both 2022/23 and 2023/24 tax years  should be reported to HMRC and forms R185 completed; 
but only for the current 2024/25 tax year if the estate income exceeded £500 from 6 April 2024 to the date the administration of the estate ceased.

@Nettiemc3
The estate income should include interest paid/credited after the date of death and the amount for each beneficiary is the % split.

I hope this all helps.

poseidon1

Newly_retired said:

For low value estates - From gov.uk

From 6 April 2024, if the estate’s income from any sources is less than £500, you do not need to report the estate to HMRC.

The £500 tax-free amount applies: 

• for every tax year of the administration period, but you cannot carry over unused amounts from one year to the next
• to all types of income, except ISAs, which continue to be exempt from Income Tax or Capital Gains until the estate is closed or up to 3 years after the person’s death

Thanks Newly_retired for  this heads up on a recent de minimus change to the quantum of estate income deemed to be tax free and exempt from income tax reporting. Sadly seems to be usual cliff edge so £501+ fully reportable.

Hopefully this may assist the OP if any of the income in question spills into 2024/25.

Nettiemc3

thank you everyone for your replies, I’m not sure how I reply to individual posts, sorry 
I feel totally lost with this at the moment and will need to sleep on the info given, just as a more in depth explanation, my father passed away 18 months before my mum September’21, I went with the solicitors firm who did their wills, my dads half of the house went into trust for beneficiaries and a sum of money kept back for expenses and when my mum passed, I stayed with the same solicitor as I didn’t know any better and was in quite a bad way emotionally, she was the administrator and I believe my brother and myself executors, she took control over closing accounts, dealing with utilities etc, even though I offered to do this, I couldn’t even contact the local council as they were charging for council tax before probate, apparently as there was a trust ( my dads trust) there was a source to fund this, I think I would have put up a fight, but I no longer had any control
A few weeks after the house sold, my dads share was released, she said she had to deal with my mums separately as she had to send info to HMRC so it will take longer, I did mention in conversation that I do my own self assessment, (none of the other beneficiaries do) and mentioned that I need closure ( for my mental health), my brother and I received the folder and had to sign to say we agreed with the figures, which I didn’t dispute and believed everything was in order as the estate had paid for these services to closure/ finalisation, also all beneficiaries had to acknowledge receipt, nobody received a R185, this all happened just before Christmas ‘24
the interest income was over £1000 that came from savings accounts, ISA interest and premium bond winnings 
I think my next step is to go back to solicitor as recommended for the R185’s, she became less approachable, the closer we came to the end, so hopefully I get the results I need 
many thanks