Tax on Interest

sheffix2

Hi - I'd be grateful for your help. I was Executor of my Dad's estate & his savings were in various NS&I products. Since the value was over £85k I set up a Direct Saver with them to transfer the funds as they were released. I referred to it as the Executor Account throughout the process but it was in my name. The account gained interest prior to distribution. This was then added to interest my father's accounts had accrued since his death. I wrote to HMRC declaring the amount of interest his estate had accrued during the Administration period & asked what tax I needed to pay. I subsequently paid the tax requested. HMRC now appear to have included the tax accrued in the Direct Saver I set up as Executor against my own tax calculation resulting in a demand for tax which has already been paid as part of my Dad's estate. 
I wrote to HMRC explaining this over a month ago but haven't had any reply & have a payment deadline. Has anyone else had experience of this and how best to deal with it?

poseidon1

sheffix2 said:

Hi - I'd be grateful for your help. I was Executor of my Dad's estate & his savings were in various NS&I products. Since the value was over £85k I set up a Direct Saver with them to transfer the funds as they were released. I referred to it as the Executor Account throughout the process but it was in my name. The account gained interest prior to distribution. This was then added to interest my father's accounts had accrued since his death. I wrote to HMRC declaring the amount of interest his estate had accrued during the Administration period & asked what tax I needed to pay. I subsequently paid the tax requested. HMRC now appear to have included the tax accrued in the Direct Saver I set up as Executor against my own tax calculation resulting in a demand for tax which has already been paid as part of my Dad's estate. 
I wrote to HMRC explaining this over a month ago but haven't had any reply & have a payment deadline. Has anyone else had experience of this and how best to deal with it?

You have outlined the dangers of executors setting up accounts that are not dedicated executors accounts identified as such on the face of the record  eg account entitled  ' Executor/s of John Smith deceased'.

Instead I have seen a number of people  on this forum blithely advising OPs that executors accounts are unnecessary for the administration of deceased estate and see no reason why you cannot set up in your own name or even ( worse still) use their own personal accounts.

What seems to have occurred in your case is that having rightly reported the direct saver interest as estate administration income taxed by the HM inspector dealing with the estate, the saving account provider separately reported the same income as your personal income to your HM inspector ending up with potential  double tax on the same amount.

Obviously, you need to write again to HMRC setting out that you have already paid tax on the income wearing your 'executors' hat ( quoting the appropriate tax reference number ) and that unfortunately the saving account provider unknowingly reported the same income  direct to HMRC as  personal to you.

This would not have happened if the account had been set up as I indicated above. Hopefully an object lesson to advocates who see executor accounts as ' unnecessary'.

badmemory

Of course you will also run into the severe reluctance of any bank to open that executors account.  I tried.

sheramber

The department dealing with estates income will have no connection to your personal tax account.

SnowMan

sheffix2 said:

Hi - I'd be grateful for your help. I was Executor of my Dad's estate & his savings were in various NS&I products. Since the value was over £85k I set up a Direct Saver with them to transfer the funds as they were released. I referred to it as the Executor Account throughout the process but it was in my name. The account gained interest prior to distribution. This was then added to interest my father's accounts had accrued since his death. I wrote to HMRC declaring the amount of interest his estate had accrued during the Administration period & asked what tax I needed to pay. I subsequently paid the tax requested. HMRC now appear to have included the tax accrued in the Direct Saver I set up as Executor against my own tax calculation resulting in a demand for tax which has already been paid as part of my Dad's estate. 
I wrote to HMRC explaining this over a month ago but haven't had any reply & have a payment deadline. Has anyone else had experience of this and how best to deal with it?

Yes I'm in the near identical situation. I was sole executor to my mum's estate and also had an account in my own name which was used solely as an executor account. My mum's bank don't offer executor accounts nor does mine and I couldn't really find any other savings institution that would allow me to open a suitable executor's account. One bank would let me open an executor's account once probate was received but there was money to pay in pre-probate so that wouldn't have helped. Most of the executor account interest is from the pre probate period so opening an executor account wouldn't have stopped this issue arising.

As executor on behalf of the estate I paid tax on savings interest to HMRC for 2023/2024 in relation to estate administration interest which included interest from this executor's account and interest from accounts in my mum's name.

As a beneficiary of the estate also, I received a distribution from the estate which included my share of this interest that had had this tax deducted. The interest was detailed on an R185.

I then submitted an R40 claim to HMRC to reclaim the tax paid on the estate distribution as I'm a non tax payer. HMRC then wrote back to say it wasn't possible for me to have received net interest as all interest is paid gross. I rang them to say this was wrong, estate distributions can include net savings interest, but they wouldn't speak to me about this, and told me to write in. So I wrote in including a very detailed account of what had gone on, but they misfiled the letter and erroneously closed down my R40 claim. They've insisted that I now need to complete an R40 a second time.

HMRC have separately calculated and sent me an P800 for 2023/2024 saying I have overpaid £3,500 in tax. This is completely wrong and ignores that they had already refunded me over £3,000 following a P55 claim. I've rung them 3 times, been cut off twice mid-call but can't get anyone to look into this and correct my tax record. So they still claim they owe me £3,500 when they actually owe me just over £100!

HMRC are also saying the executor account interest is my own interest. In my own case it doesn't matter if the interest is treated as mine as I would still remain a non-taxpayer. I've told them that treating the executor account interest as mine is nonsense, but if they want to take that approach then they should be refunding the estate the tax paid by the estate on the executor account interest.

At the moment nothing has been resolved and I've registered a complaint about HMRCs incompetence. It would be a huge understatement to say that HMRC as an organisation are very difficult to get through to or deal with. In my experience their arrogance and complete contempt for a taxpayer who just wants to pay the right tax is shocking. 

poseidon1

SnowMan said:

sheffix2 said:

Hi - I'd be grateful for your help. I was Executor of my Dad's estate & his savings were in various NS&I products. Since the value was over £85k I set up a Direct Saver with them to transfer the funds as they were released. I referred to it as the Executor Account throughout the process but it was in my name. The account gained interest prior to distribution. This was then added to interest my father's accounts had accrued since his death. I wrote to HMRC declaring the amount of interest his estate had accrued during the Administration period & asked what tax I needed to pay. I subsequently paid the tax requested. HMRC now appear to have included the tax accrued in the Direct Saver I set up as Executor against my own tax calculation resulting in a demand for tax which has already been paid as part of my Dad's estate. 
I wrote to HMRC explaining this over a month ago but haven't had any reply & have a payment deadline. Has anyone else had experience of this and how best to deal with it?

Yes I'm in the near identical situation. I was sole executor to my mum's estate and also had an account in my own name which was used solely as an executor account. My mum's bank don't offer executor accounts nor does mine and I couldn't really find any other savings institution that would allow me to open a suitable executor's account. One bank would let me open an executor's account once probate was received but there was money to pay in pre-probate so that wouldn't have helped. Most of the executor account interest is from the pre probate period so opening an executor account wouldn't have stopped this issue arising.

As executor on behalf of the estate I paid tax on savings interest to HMRC for 2023/2024 in relation to estate administration interest which included interest from this executor's account and interest from accounts in my mum's name.

As a beneficiary of the estate also, I received a distribution from the estate which included my share of this interest that had had this tax deducted. The interest was detailed on an R185.

I then submitted an R40 claim to HMRC to reclaim the tax paid on the estate distribution as I'm a non tax payer. HMRC then wrote back to say it wasn't possible for me to have received net interest as all interest is paid gross. I rang them to say this was wrong, estate distributions can include net savings interest, but they wouldn't speak to me about this, and told me to write in. So I wrote in including a very detailed account of what had gone on, but they misfiled the letter and erroneously closed down my R40 claim. They've insisted that I now need to complete an R40 a second time.

HMRC have separately calculated and sent me an P800 for 2023/2024 saying I have overpaid £3,500 in tax. This is completely wrong and ignores that they had already refunded me over £3,000 following a P55 claim. I've rung them 3 times, been cut off twice mid-call but can't get anyone to look into this and correct my tax record. So they still claim they owe me £3,500 when they actually owe me just over £100!

HMRC are also saying the executor account interest is my own interest. In my own case it doesn't matter if the interest is treated as mine as I would still remain a non-taxpayer. I've told them that treating the executor account interest as mine is nonsense, but if they want to take that approach then they should be refunding the estate the tax paid by the estate on the executor account interest.

At the moment nothing has been resolved and I've registered a complaint about HMRCs incompetence. It would be a huge understatement to say that HMRC as an organisation are very difficult to get through to or deal with. In my experience their arrogance and complete contempt for a taxpayer who just wants to pay the right tax is shocking. 

From your post and that of the OP, I see a very unfortunate trend where ordinary members of the public taking on DIY estate administration are hampered  by the retail banks refusal to establish executorship accounts.

This is clearly  leading to situations where  ( as in the present cases) estate income is conflated with the personal income of the person administering the estate, with HMRC having no obvious means of independently distinguishing between the two.

I have to confess I had no idea this was occurring. In my past professional experience, if a client was not using a solicitors' client account for estate transactions, then due to  our relationships with certain banks we dealt with,  it was easy for us to establish executorship accounts on a client's behalf ( Cater Allen was one of our traditional go to).

However a quick Google search indicates that both Barclays and Nat West purport to provide executor accounts. I suspect however that it is easier to achieve this if one already has a personal banking relationship with them and  then there is also the practical difficulty of availabilty of an actual bank branch to visit, given that both banks have been at the forefront of branch closures for many years now.

I sense this is an going issue and I  struggle to see a solution. 

badmemory

Maybe Barclays do purport to but certainly when I was executor for my mothers estate they refused to.

mybestattempt

I think that the issue here has arisen as estate funds were held in  interest bearing accounts.

If the executor/administrator of the estate is unable to open an executor account and must use a personal account in their own name then it might be prudent to use a non interest bearing account to administer the estate.

Savvy_Sue

poseidon1 said:

However a quick Google search indicates that both Barclays and Nat West purport to provide executor accounts. I suspect however that it is easier to achieve this if one already has a personal banking relationship with them and  then there is also the practical difficulty of availabilty of an actual bank branch to visit, given that both banks have been at the forefront of branch closures for many years now.

I sense this is an going issue and I  struggle to see a solution. 

What NatWest actually did (some years ago now) was open a normal joint account for me and my co-executor, which they then renamed "Executors of ..." However, it still showed up in various places as a simple joint account, with the "Executors of ..." tag, and it was certainly not straightforward. 

mybestattempt said:

I think that the issue here has arisen as estate funds were held in  interest bearing accounts.

If the executor/administrator of the estate is unable to open an executor account and must use a personal account in their own name then it might be prudent to use a non interest bearing account to administer the estate.

That's certainly good advice, and also avoid the ones with 'benefits' if you pay in £x and set up DDs. Of course they usually require regular income as well, which isn't a feature you'd expect in an Exec account. 

retroman62

poseidon1 said:

 From your post and that of the OP, I see a very unfortunate trend where ordinary members of the public taking on DIY estate administration are hampered  by the retail banks refusal to establish executorship accounts.

This is clearly  leading to situations where  ( as in the present cases) estate income is conflated with the personal income of the person administering the estate, with HMRC having no obvious means of independently distinguishing between the two.

Too right. And it's wider even than that with retail banks. My own bank with whom I had been with for over 40 years proved not "to be on my side" after all when they refused to certify official documents to prove my identity when I was dealing with probate after my father's death. Shameful. 

sheffix2

Thanks for all your helpful replies. I certainly share the difficulty in getting an Executor Account and was advised that this wasn't needed as long as I had a separate account for estate dealings. Since most of Dad's financial assets were in the NS&I it seemed easier to transfer each asset as they were cleared into the Direct Saver I set up. It also felt safer for beneficiaries' funds to be protected in this account rather than be subject to the FSCS limit of £85k in a high street bank account. Glad to know I'm not the only one with this issue.