Tax on rental income received during administration period

NebulaGlyph92

Hello. My mother died last year with my sibling and I being joint executors and sole and equal residual beneficiaries. The total value of the estate is around £750k with no IHT to pay due to taking the NRB and RNRB of our father who died 2 years earlier. Based in England.

We’ve recently received the grant of probate so can start distributing the estate.

She had sole ownership of a rental property and we’ve continued to receive rent during the administration period. How do we deal with the rental income until we sell/transfer ownership?

• The tax due is under £10k so I understand we should be doing this under ‘informal arrangements’ process with HMRC. Is this correct?
• Do we need to submit a return after the end of each tax year during the admin process, or can it be done in one go when the admin period ends?
• Related to the above do we only need to submit a return if a payment of income is made to beneficiaries during the relevant tax year?
• How do we account for the rental income on our self assessments? I’ve read about a R185(Estates) but can’t figure out how everything fits together.

Thanks in advance

poseidon1

Answers to your questions:

1)  If total estate tax is under £10k for the administration period then yes you can bypass a formal SA900 estate tax return and report the tax due by way of a letter to HRMC enclosing a cheque for the tax due. However, how have you ascertained the end of the estate administration? If you execute a simple 'Assent' of the property/properties ( if your mum also had her own home) the date of the Assent(Assents) , could be a convenient end point.

2)  As for beneficiary income tax reporting, you both report your share of the Estate income on your respective tax returns based on the tax years you received distributions from your mother's estate. If nothing distributed until the current tax year, then you will be reporting your half shares of estate income ( after tax) on your 2025/26 tax returns.  You should prepare forms R185 ( Estate income) for this purpose to back up the relevant entries on your respective tax returns- see below link to the form which you should find self explanatory

https://www.gov.uk/government/publications/trusts-and-estates-statement-of-income-from-estates-r185-estate-income


Going forward presumably you will establish a joint account for future rental income, and conduct your own individual estate planning as to what should happen to your respective half shares, in the event of death.

NebulaGlyph92

poseidon1 said:
Answers to your questions:
1)  If total estate tax is under £10k for the administration period then yes you can bypass a formal SA900 estate tax return and report the tax due by way of a letter to HRMC enclosing a cheque for the tax due. However, how have you ascertained the end of the estate administration? If you execute a simple 'Assent' of the property/properties ( if your mum also had her own home) the date of the Assent(Assents) , could be a convenient end point.

Thanks for taking the time to respond.

We've not ascertained the end date of the estate administration. Mum did have her own property which we intend to sell in the short term. Would it make sense to wait until the property is sold, or is there value in doing an Assent prior to this? AIUI HMRC would get the same tax on the rental income either way?

We are still finalising the figures for a few remaining unpaid debts/income tax etc but should have this wrapped up in the next couple of months.

2)  As for beneficiary income tax reporting, you both report your share of the Estate income on your respective tax returns based on the tax years you received distributions from your mother's estate. If nothing distributed until the current tax year, then you will be reporting your half shares of estate income ( after tax) on your 2025/26 tax returns.  You should prepare forms R185 ( Estate income) for this purpose to back up the relevant entries on your respective tax returns- see below link to the form which you should find self explanatory

Thanks. We made no distributions in the 24/25 tax year, I expect everything will happen in 25/26. Does this mean we don't need to report the rental income for the estate until 25/26?


Going forward presumably you will establish a joint account for future rental income, and conduct your own individual estate planning as to what should happen to your respective half shares, in the event of death.


Yes this is indeed the plan!

poseidon1

The disadvantage of dealing with estates on a DIY basis is having no knowledge of the nuances involved in deceased estate tax rules  compared to personal taxation.

If there is a possibility that your mother's home might sell for a higher figure compared to probate value, it would be as well to be aware of tax rates ( and exemptions ) available to estates compared to your own personal tax position - see link below

https://www.gov.uk/guidance/capital-gains-tax-rates-and-allowances#rates-for-capital-gains-tax

The estate only has a single CGT exemption of £3000, and must pay CGT at the rate of 24% regardless of the amount of excess gain.

By contrast individuals have the same £3,000 exemption, but gains could be taxed as low as 18% depending on that person's marginal tax rate for income tax purposes.  Accordingly, depending on the likelihood of a gain on sale, there could be a benefit in assenting the property to personal ownership pre-sale, if only to obtain the use of two cgt £3,000  exemptions, rather  than the estate's sole exemption.

 This does assume neither of you have used or plan to use your exemptions on other asset disposals this year. - you may find the HMRC cgt calculator  ( below) useful in seeing how this could pan out based on your incomes for the current year -

https://www.gov.uk/tax-sell-property/work-out-your-gain

Since there was no estate income distribution in 24/25, all the accumulated estate rent ( less tax) will be assessable on you both in the current tax year assuming you do wind it up as planned.

 Depending on your personal incomes, the accumulated estate income could end up pushing you both into higher income tax brackets.  Had you been aware that you are taxable on estate income when it is distributed, it may have beneficial to have made distributions ( on account ) in the last tax year, and perhaps mitigate higher rate taxes as a result. Too late for that now.