Determining end date for administration period - help needed...

ijholdie

I am in the midst of drafting a "informal arrangements" letter to HMRC for the tax due for a simple estate.

I understand that the administration period started the day after my father passed away. However, I am struggling to work out what to specify as the end date of the administration period in the informal arrangements letter.

I have sold his property (no capital gains tax due), and I have worked out the income tax due on the interest on my fathers banks accounts and the share dividends so far.

I have not distributed the estate as per the will yet, because I was waiting to send the informal arrangements letter to HMRC to get confirmation that my tax calculation is correct, and then to pay them the amount… then distribute the monies as per the will, once the tax has been paid.

So how do I determine the end date for the administration period? Is it now, or when I've paid the tax, or when I've distributed the estate to the beneficiaries?

Thanks in advance for your help.

Ian

Marcon

So how do I determine the end date for the administration period? Is it now, or when I've paid the tax, or when I've distributed the estate to the beneficiaries?

HMRC isn't too sure either, but they are generally of the opinion that it is when residue has been ascertained: https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg30700

jem16

https://forums.moneysavingexpert.com/discussion/6657431/determining-end-date-for-administration-period-help-needed

I went with the date that the estate proceeds were paid out to the beneficiaries. My brother and I were executors and main beneficiaries. I had worked out the likely estate tax due so held some back to pay for it. HMRC were happy to accept my dates and tax due was exactly to the penny that I had calculated. Letter sent mid November and tax bill eventually appeared mid February. Although we were given to end of January 2027 to pay it, we decided to pay it and finalise everything. There was a small amount left over which I simply shared between us.

ijholdie

Thanks, but don't you need the R185 form to accompany the payout to the beneficiaries, and presumably you can only fill the R185 form in once HMRC have confirmed the amount of tax due. I don't see how I can distribute the money to the beneficiaries until the Tax is confirmed by HMRC.

Do I have to specify the end date of the administration period on the informal letter to HMRC, and if so can I specifty that date a the exchange date of the associated property sale (even though I have not distributed the money to the beneficiaries yet)?

jem16

https://forums.moneysavingexpert.com/discussion/comment/81904593#Comment_81904593

If you know all the amounts that are due then yes I expect you can use that date.

We had money earning interest in the lawyer’s fund account and needed that for the informal reporting. It was easier to pay out at that point. I had worked out the tax due on the estate income and when HMRC finally issued their bill, it was to the exact penny that I had calculated. As my brother and I were both executors and main beneficiaries, there wasn’t a problem.

probate_slave

I wouldn't say that R185s have to accompany distributions, only that they should be sent to beneficiaries at the end of the tax year to whom payments of income are made (or deemed to have been made). And of course they only go to beneficiaries with an interest in residue, not pecuniary legatees.

From your other threads you appear to have already transferred your father's shares (to yourself), so the estate isn't due any further dividends or ex-dividends. Presumably there is just the continuing deposit interest taxable on the estate? As jem16 suggests, I would pay the legacies now while holding back some cash for estate tax and, if IHT was payable, the possibility that the VOA may challenge the probate value of the house. Your informal letter can simply state that you wish to wind up the estate now and that no further income is due. Be prepared to wait up to a year for a reply. Any further deposit interest can be regarded as income of the residual beneficiaries.

Estate income is self-assessed, so only you as PR can know how much was received. Which means that you can calculate it easily (at 20% or 8.75% of income) and there is really no likelihood of the figure being disputed.

As for the end of the administration, this will surely have to wait until you have paid the estate tax and can show it in the accounts. Only then will you have "taken all the steps necessary to complete the administration" of your father's estate. I realise this somewhat contradicts the guidance at gov.uk which asks you to report estate income "at the end of the administration period".

ijholdie

@probate_slave thanks, yes, you are correct, all of the shares have been transferred, and the remaining estate funds are now in an executors account which is not earning any interest. I have calculated the amount of interest due on my father's banks and BS accounts from the day after he passed away, until they were closed and transferred into the executors account. I have also calculated the amount of interest due on the dividends of the shares from the day after my father passed away until they were transferred to myself. The property sale exchanged a week ago.

So, do I have to specify the administration end date in the informal arrangements letter?

If I distribute the funds to the beneficiaries before April 2026, does that mean that I would need to send them an R185 form before April 2026 too? (You can see what I am getting at, it's a bit chicken and egg!)

probate_slave

Well, if income has already dried up your position is simplicity itself. Since your father died in May 2024, you send HMRC a breakdown of estate income in 24/25 and 25/26. You tell them the date of the final income receipt, explain that there will be no more and that you wish to close the estate forthwith. That's it, no need to specify any administration end date.

I am slightly confused by your expression "interest due on the dividends". Is this dividend income, taxable on the estate at 8.5%? Or did some shares make distributions of interest, taxable at 20%? Or do you mean that the accumulated dividends before transfer earned interest on deposit (also taxable at 20%)?

I can't really see how this is a chicken & egg situation. You have a fixed amount of capital, along with a fixed amount of income sitting in residue, and a known liability of estate tax. You are free to transfer it to the beneficiaries at any time, but the amount can never vary. Assuming you do it before April 6th this year, and the sooner the better, you can send out R185s for 2056/26 after April 6th (since noone does a tax return before then). These give the total share of income for each residuary beneficiary for the whole period.

Just to be clear, R185s aren't required for distributions of capital, which of course are tax-free for beneficiaries, but only for distributions of estate income which are taxable on residuary beneficiaries. Are there other residuary beneficiaries beside yourself?

ijholdie

@probate_slave the "interest due on dividends" refers to the taxable dividend income due to the estate (I thought this was at 8.75% rather than 8.5%?).

In answer to your question, there are 3 beneficiaries - myself, my wife, and my son. The will specifies the distributions based on percentages of the estate funds, hence the reason why I thought I had to wait for confirmation from HMRC as to the correctness of my tax calculations (If I get it wrong, the percentages I distribute will be wrong, but it sounds like I can tweak this when I hear from HMRC as long as there are sufficient funds left in the estate).

eg. Let's say the estate account has £10K, and the will says 20% goes to my son, 20% to my wife and 60% to me. And lets say I have calculated that the income tax to pay HMRC is £1000. So I would deduct the £1000 from the £10K, leaving £9000, and distribute 20% of the remaining £9000 (£1800) to my Son, and the same to my wife. Then (hopefully) HMRC confirm that my tax calculation is correct, and I pay them the £1000. Then send F185 forms for 20% of the £1000 income tax (£200) to my son and wife, and a F185 for 60% of the income tax (£600).

Are my assumptions and calculations in the example above correct?

probate_slave

Yes, your calculations look sound. And apologies for my typo, indeed I meant 8.75%.

If estate income totalled £10,000, with income tax due of £1,000, then your son's "income entitlement" is £2,000 gross. The R185 for your son will show a total of £1,800 net income, with £200 tax deducted. But these amounts have to be apportioned between savings and dividend income.

As the house has only just sold, I assume you haven't yet made any distributions of capital? If, for instance, you had given your son an interim capital distribution of £3,000 in the 2024/25 tax year, as this would exceed his income entitlement for the year he would be taxable on his share of 24/25 estate income in that year.

If you have any doubt as to the accuracy of your estate tax and R185 figures, do feel free to show the workings here. You could also hold back the R185s for as long as it takes HMRC to issue a bill. After all, 25/26 SA returns aren't due for 11 months.

ijholdie

Thanks @probate_slave - the property goes wholly to me, under the terms of the will. The house was sold for slightly less than the probate value (after taking into consideration solicitor's and estate agent's fees), so I do not believe any capital gains tax is due.

I'm not really sure I understand the detail regarding the R185 apportioning, and the comment regarding distribution of capital?

When I start looking at the R185, I would really appreciate some help/advice if that is Ok? Many thanks for the help you have given me thus far, it has been really useful.