How to handle Estate Income for Simple Estate Informal Arrangements?

holmes29

Hi Everyone,

Long time lurker but had to create a new account to post. I normally get my answers from existing threads but need some help myself this time.

I am the joint executor of my mother's estate who sadly passed away at home on her own (she lived 200 miles from me) in June 2022. As an autopsy was required there was a delay before the death was registered (by me) and the Tell Us Once service was used (by me). This resulted in an approximate 4.5 week period from date of death to Tell Us Once service being used.

Grant of probate was handled by a probate case handler at a solicitor's, however, the executors are handling the rest including estate income and final accounts.

We were about to send off the informal arrangements letter for a 'simple estate' to HMRC but I have found some issues. My mother had two chargeable gains from two investment bonds held over 22 years with two providers (each approx £30k which puts her into the higher tax category for year of death) so I contacted HMRC to declare this and now need to do a self assessment (SA100) for my mother for the period April to her death in June 2022.

However, there is some income that was paid after her death that I am unsure how to handle.

1. I calculate that approximately 6 weeks of state pension have been overpaid. In the time since her death neither myself or the other executor have been contacted by DWP to pay this back. As I am now doing the self assessment (SA100) for the tax year of her death is it likely that HMRC will notify DWP and request this money to be repaid? If not, should I be putting this as estate income (pension) for which 20% tax is due? I understand there is no obligation for me to repay this overpayment.
2. The investment bonds were paying 5% of the initial sum invested as tax free income to my mother as a regular monthly amount (one had exhausted the 5% per year for twenty years so tax became payable on the income but not the other one). One bond provider took back three months of overpayments from the final settlement fee, however the other bond provider did not, despite me querying this with them. So it looks like I have three months of income paid after date of death to declare on estate accounts (approx £375 in total). Is this correct?
3. My mother held a unit trust with Fidelity where she was able to withdraw a fixed regular monthly amount by means of withdrawing capital from the trust but no tax was paid on this income during her lifetime. There is a period of two months after her death where £55/month was received by the estate. Does this £110 need to be declared as estate income?

Note that on the HMRC P800 calculations each year for my mother I saw nothing relating to the two investment bonds or Fidelity regular monthly amounts in previous years.

Thanks in advance.

poseidon1

Taking each category of estate 'income' in turn -

1. Regarding the state pension, beyond using the Tell Us Once service, did you separately inform DWP direct of the overpayment, and if so did they acknowledge in any way? If you did not approach them direct, you should do so since strictly speaking this remains a debt due from the estate and should be repaid. If despite your efforts (if any) to inform the DWP of overpayments they have failed to follow up with a repayment demand, then the amount is neither taxable on the deceased ( pre death) or on the estate post death. It becomes a DWP admin error in the estate's favour.
2. Investment bond taxation is straight forward. Unless the errant bond provider issues a chargeable event certificate for any policy gain deemed included in the subsequent monthly payments, the estate has no basis to report anything to HMRC by way of chargeable event gains. No certificate on final encashment then nothing to declare. Treat the payments as non taxable estate capital.
3. The Fidelity unit trust payments requires further specific information. There are a number of unit trusts which pay taxable monthly income either by way of dividends or interest ( I have a couple myself ). Although you say this was non taxable capital, there should still have been annual summaries of investment gains /losses realised by Fidelity on unit sales, if that were the case. Name of the trust should indicate the true nature of the withdrawals.

holmes29

Hi @poseidon1,

Thank you so much for your reply and apologies for the delay in my response! I've seen a lot of your replies to other threads that have helped so I was pleased that you made so much effort to reply to me. In response:

1. I have not contacted DWP directly up until now. HMRC contacted me directly about income tax without me approaching them but DWP did not. But I read that even if DWP were to contact me to settle the overpayment they have no power to demand it and they will only ask once. So this seems to be more of a moral dilemma.
2. I did not receive any further chargeable gain certificate which is good!
3. In fact it was an OEIC that was paying income to my mother to 'top up' her income. Any income generated by the fund by means of interest distributions was always reinvested to buy further shares/units in the same fund. But each month a regular withdrawal of £55 was made by means of selling units in the fund. My reading of the aberdeen 'Summary - bonds v OEICs' page (https://techzone.aberdeenadviser.com/public/investment/Practical-guide-summary-bond) indicates that this would be a disposal for capital gains tax rather than income tax and we are well within the annual £3000 capital gains tax allowance. Investment in this particular fund (Janus Henderson Institutional UK Gilt I Inc - GB0007672420) in this particular account at death was only approx £580 (313 units) so it was nearly depleted anyway. Original investment in this fund in 2006 was approx £11800 (7400 units) with £3600 (2400 units) later being sold and re-bought in an Investment ISA in the same fund with Fidelity in 2008. The withdrawals of £55/month were made over the course of approx 16 years.

If any further information is needed please let me know.

holmes29

Hi @poseidon1,

https://forums.moneysavingexpert.com/discussion/comment/82114695#Comment_82114695

Would you be able to confirm my understanding on point 3 that the disposal would be included within the CGT allowance of £3000?

Thanks.

poseidon1

https://forums.moneysavingexpert.com/discussion/comment/82137469#Comment_82137469

You indicated there were only 313 units valued at £580 at date of death, so unless those went on to sell for a post death profit well north of £3600, the estate £3,000 cgt exemption will more than shelter the gain ( if any). However that assumes there are no other estate assets liable to CGT sold in the same period.