Where/when do we report income from estate between death and distribution?

morgmonster

My Dad died in Oct 25 and I'm dealing with his estate (Mum is executor but I am doing most of the admin and forms keeping her in the loop). He had a lot in S&S ISAs, a GIA, and some cash savings. (Plus main property and a holiday flat but they are jointly owned with Mum, and not rented out or anything). I have just sent off the IHT forms (he had foreign shares over £100,000). We may have a bit of a wait before applying for probate because although we have copies of his Will we cannot locate the original thanks to the solicitor moving practice and then retiring, so currently waiting on more info, but may have to prove the copy. Everything goes to Mum.

I have submitted his SA tax return for 24/25 (full year) and have the paper form ready to do April 25 - until his death. I've estimated that he is due a tax refund for 24/25 of around £3000 and I put that as a provisional figure in box 74 of the IHT400.

My question is, his SIPP at least (I know it's not included in the estate but it's indicative of his investments) is up 10% since he died so I was wondering how we account and pay any tax due on increases in his GIA between his death and the date his estate is deemed to be closed, and what date will this be (when probate granted, or when the last thing in his name is transferred, or …)? Or if it goes to Mum will they transfer it to her in specie (is that the right term?!) so no CGT due until she sells any of the investments? His Cash savings are not going to generate enough to pay tax as most were dealt with under Small estates soon after his death, so are already with Mum.

Is it HMRC who will contact us? And I assume that any increase in value after death doesn't necessitate an adjustment / correction to the IHT forms? I just want to be ahead of the curve! Thank you.

poseidon1

Firstly, the estate is a separate and distinct taxable entity in its own right during the administration period, and HMRC expect executors to self assess any taxable estate income or capital gains that may arise. They will not be holding your hand or assist with this.

So what is exposed to this self assessment process?

You state all interest bearing cash already passed to your mother. All ISA investments if left as is and not disturbed until your mother is ready to transfer to her own APS ISA , is tax free and outside estate tax reporting. Similarly the Sipp does not concern the estate from a tax point of view.

That therefore leaves income generated from the GIA portfolio and the £100k in foreign shares, all of which I assume were in your father's sole name unlike the other assets?

From what you have said, with the Will having apparently gone AWOL for the moment, your mother's estate administration will drag on into the new tax year until probate can be formally obtained. At that point presumably the investment portfolio can then be legally transferred to her?

In the interim if portfolio income generated exceeds £500 in the current tax year, the estate has a notional obligation to declare and pay tax thereon - see guidance below

https://www.gov.uk/probate-estate/reporting-the-estate

I say notional, since if the total tax payable ( income and CGT) for the entire administration period to completion is below £10k, there is a simplified one off informal tax reporting system as mentioned in the link.

So following questions arise:

• Are all the GIA investments held in non certificated form on one of the well known DIY platforms?
• If some are held in certificated form are they UK and/or Foreign? If foreign are any USA holdings?
• What was the total market values at death?
• How much investment income (dividends/interest) has been received since date of death?
• Have there been any investment sales/disposals since date of death?

Answers to above will help determine if your mother can avoid completing annual estate tax return forms SA900, and wait to use the £10k informal tax reporting process, once probate obtained and administration complete.

morgmonster

Thank you very much for your detailed reply. I have answered your questions below - it is really useful to just get this down on paper and sort my thoughts! Thank goodness that he had the bulk in ISAs.

So following questions arise:

• Are all the GIA investments held in non certificated form on one of the well known DIY platforms?

Yes, the vast majority are HL and II. He has some VCT investments, under the limit for paying income tac so I have't had to declare these on the usual Self assessment but wasn't sure if this was also the case for this interim period or they do count.

• If some are held in certificated form are they UK and/or Foreign? If foreign are any USA holdings?

There are a couple of tiny holdings in uk ethical investments (like £200/250), tending to be unlisted and don't generate income.

The Foreign shares are French and held in an online platform. They were part of a benefits package he had from a job in the early 2000s so should all have vested now but he has never touched them. They generated about £1000 in dividends in 24/25. Transferring them to mum (well, I'm hoping she will sell them as it's a headache I don't want to revisit again in the future when she passes) and paying all taxes due is the one thing I'm definitely going to engage a professional for (anyone know a tax advisor/ accountant who speaks French?!)

• What was the total market values at death?

Total £15k in the two GIAs, VCTs £35k total, French shares at death £110k but have gone up around 40% since.

• How much investment income (dividends/interest) has been received since date of death?

I don't have this at the moment, but for reference 24/25 tax year was £1700 dividends total (inc the French ones) and about £120 interest on cash held in the GIAs. I haven't got the VCT dividends currently noted down as they weren't needed for the self assessments.

• Have there been any investment sales/disposals since date of death?

No, currently everything has stayed as it was at death.

So, certainly over £500 income, but the tax will be well under £10k. The total estate value was £1.8m so I am hoping that this means we will count as a 'Simple' estate which is reassuring. (The moment I realised that the value of the French shares meant it wasn't an exempt estate for the IHT my heart absolutely sank!) Thanks for explaining and directing me to that useful link.

poseidon1

The good news is with such a small investment portfolio ( other than the French shares), there should be every possibility to restrict tax compliance to informal disclosure under the sub £10k tax reporting system.

However, this would mean avoiding a sale of the French shares until after they are transferred to your mother's personal ownership, since on the capital gain you identified thereon after death ( £44k), estate CGT would be over £10k at the 24% rate applying to estates.

That said, once in your mother's ownership, strongly reccomend a sale ASAP since such investment holdings are unsuitable for relatively unsophisticated investors. There is also complex income tax compliance deriving from domestic French witholding tax, although as of 2025 this has reduced to a more reasonable rate of 12.8% ( for qualifying non resident investors) which is not recoverable in UK but partly allowed against UK tax liabilties.

If you are planning to engage a tax adviser to handle the tax implications of this French holding, I would be inclined to go a stage further and delegate the entire informal estate tax disclosure process for the estate to the adviser.

You will struggle with the requisite income tax calculations taking into account the French tax credits available under the UK/French double tax agreement, and you may struggle with preparing the estate form R185 which identifies the estate income your mother is required to report for her own personal tax purposes. See form below-

https://assets.publishing.service.gov.uk/media/65e5aeb57bc329e58db8c1b9/R185Estate-Income.pdf

I would therefore reccomend you consult the ICAEW directory of Chartered Accountants to locate a tax specialist who can handle estate tax compliance having regard to this French tax element. Worth noting they don't need to be French speakers, they merely require competency in cross border tax issues. The following link might assist in finding a suitable firm -

https://www.icaew.com/regulation/probate-services/probate-consumer-hub/a-guide-for-lay-executors#

morgmonster

thanks so much. This is very helpful esp the suggestion to include all the post death estate tax when engaging a professional for the French part.

We definitely will be getting an IFA involved once everything is in Mum’s name. None of us have the time and inclination to look after Dad’s portfolio like he did. Luckily mum won’t need to sell the French shares until they’re in her name so we will definitely avoid doing that. We had the dubious “luck” of losing Dad under 75 and before the changes coming in next year so his SIPP is tax free. He never got around to IHT planning but Mum will definitely need to do some.

Thanks again, really appreciate your time spent replying.

poseidon1

https://forums.moneysavingexpert.com/discussion/comment/81914636#Comment_81914636

With regard to the Sipp, I am guessing your mother was nominated the sole beneficiary?

If IHT is going to be a future issue with the Sipp converted to a tax free benefit to your mother, she could consider approaching the pension trustees to exercise their discretion to divert some of the funds to her children so that they never become part of her estate, assuming the payout has not yet occurred.

Also don't over look Deeds of Variation within 2 years of your fathers death. Your mother can vary the Will to divert assets to her children so those varied assets again do not form part of her estate and are deemed to have been gifted direct by your father.

A suitable subject matter for such a variation could be the French shareholding, bearing in mind it appears to be a very low income producing asset based on the information you provided, so not a material loss of income from your mother's perspective.

morgmonster

https://forums.moneysavingexpert.com/discussion/comment/81914725#Comment_81914725

Thanks, yes we became aware of this whole idea after he died. We didn't actually discuss what he wanted re the SIPP specifically and he hadn't nominated beneficiaries through the online account (silly in retrospect, but none of us realised the huge difference in tax we would face inheriting the SIPP through Mum post 2027 / her 75th birthday, compared to inheriting direct from Dad) so we assumed that he wanted it all to go to Mum, as that is what the Will said. However, HL had a document that he signed in 2008 which said 90/10/10, with myself and my brother getting 10% each. From what I've read, varying the % seems less of a big deal than adding new beneficiaries, so Mum has requested this be changed to 40/30/30 and we are waiting to see what the trustees say.

I know there is the possibility of a Deed of Variation on the Will but I don't think we want to go down that road. It was the double taxation on the future SIPP value that stuck in our throats especially since he was so proud of his investing which was all self taught in the days before the internet haha, but really we will all be left very comfortable regardless of 40% IHT on what remains of the estate when Mum dies which will hopefully be at least another 10 years. We will get some advice on reducing the IHT burden, she is keen to make regular gifts from surplus income, give plenty to charities, and we will also look at including her 5 grandchildren as beneficiaries as well as me/brother for her SIPP (She will choose to keep it as a SIPP, I will take the full lump sum I think as we would like to upsize our house, not sure about my brother). And she certainly wants to spend plenty and make the most of traveling the world while she still can!! Business class all the way.