Income during Administration Period


Income during Administration Period

Postby cliffordpope on Fri May 11, 2012 8:52 am

I understand that the period between a person's death and the final conclusion of the probate process and distribution of the bequests is treated specially for tax purposes, and that the assets and income are in trust held by the executors.
I have a number of questions however regarding details:

1) Is date of death regarded as the cut-off point? ie income received before that date becomes part of the estate and therefore subject to IHT, but income received afterwards is outside the estate?

2) Should income received post death therefore be apportioned, if it partly relates to a pre-death period ?

3) Presumably the trust created for the administrative period is liable for tax. Is it taxed as an individual, with an allowance, or a trust, with a reduced allowance, or does it not have an allowance?

4) I understand that funeral costs are a charge on the estate, not the administrators. Does that mean these costs offset IHT? What other costs can similarly be included - probate costs, solicitor's fees, travel, etc ?

5) If not, can they be offset against income during the administration period? But not both, presumably?
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Re: Income during Administration Period

Postby Tax Champion on Fri May 11, 2012 5:01 pm

1. Date of death is the cut-off point for everything except for chargeable event gains on life policies etc - these do not arise until the day after death, but are treated as income of the deceased, not of the administration period.

2 the only income which might need to be apportioned would be something like a share in partnership profits, where it would be necessary to work out the total partnership income first, then pro-rata the part due to the deceased. Earned income, including pensions, will obviously stop on death; investment income is assessed on the receipts basis, so it is the date of payment which is relevant.

3 There will not necessarily be a separate Trust created for the Administration period, although the assets are held "in trust" for the beneficiaries; income arising is normally taxed on the Executors, and there is no personal allowance due. If all income is taxed at source, there should be no further tax payable. In a very simple case, where all assets are being passed direct to the beneficiaries, the income may be treated as theirs from the date of death.

4/5 Funeral expenses etc reduce the estate for IHT purposes, but are not allowable for income tax.
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Re: Income during Administration Period

Postby Loza on Fri May 11, 2012 8:46 pm

Tax Champion

My understanding of the rules is as follows,

The deceased is liable for IT on income receivable up to the date of death, regardless of when it is received,so,
Gilt/Fixed interest securities covered by the accrued income scheme must be apportioned, relief is available under S669 ITOIA to higher rate tax payers with an absolute interest in the residue.
For shares,the cum div value at death will be included in the estate so will result in double taxation so again S669 applies in respect of divs received by the executors after death.
For savings interest,the general view seems to be that interest accrued but not paid at the time of death is taxable in the estate and so S669 again applies as the interest is paid after death.
I struggle to reconcile this with the decision in Reids Trustees where the interest to say 6 months to 31/12 is treated as the PR,s if the deceased died on 30/11.
The above rules (I believe) can be avoided if the will specifically excludes the rules in the Apportionment Act
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Re: Income during Administration Period

Postby cliffordpope on Sat May 12, 2012 2:41 pm

4/5 Funeral expenses etc reduce the estate for IHT purposes, but are not allowable for income tax.




Does that include solicitor's costs?
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Re: Income during Administration Period

Postby maths on Sat May 12, 2012 6:58 pm

1) Is date of death regarded as the cut-off point? ie income received before that date becomes part of the estate and therefore subject to IHT, but income received afterwards is outside the estate?


Income which accrues prior to the date of death is subject to IHT as it forms part of the estate of the deceased.

2) Should income received post death therefore be apportioned, if it partly relates to a pre-death period ?


For income tax purposes income due prior to death (even if paid after death) is the liability of the deceased.
Income due and payable after death is the liability of the executors as the income arises during the administration period (even if some it may have accrued prior to death).

3) Presumably the trust created for the administrative period is liable for tax. Is it taxed as an individual, with an allowance, or a trust, with a reduced allowance, or does it not have an allowance?


The executors are subject to income tax on income regarded as arising during the "administration period"; they are not entitled to personal allowances nor are they subject to income tax at rates other than 10% and 20%.In essence there is not "trust aspect".

4) I understand that funeral costs are a charge on the estate, not the administrators. Does that mean these costs offset IHT? What other costs can similarly be included - probate costs, solicitor's fees, travel, etc ?


Liabilities of the deceased subsisting at the date of death are deductible in arriving at the deceased’s net chargeable estate for IHT. These include reasonable funeral expenses and gravestone. They do not include the other costs to which you refer.

5) If not, can they be offset against income during the administration period? But not both, presumably?


No.

The Apportionment Act is irrelevant for income tax purposes; it applies for the purposes of succession only.
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Re: Income during Administration Period

Postby cliffordpope on Tue May 15, 2012 12:53 pm

"The executors are subject to income tax on income regarded as arising during the "administration period" "


Sorry to be dense, but do you mean they are personally liable for the tax, as if it were their own income added onto their ordinary income, or do you mean that they are responsible for tax on income arising from a non-personal entity, "the estate during the administrative period" ?
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Re: Income during Administration Period

Postby maths on Wed May 16, 2012 6:50 pm

Sorry to be dense, but do you mean they are personally liable for the tax, as if it were their own income added onto their ordinary income, or do you mean that they are responsible for tax on income arising from a non-personal entity, "the estate during the administrative period" ?
cliffordpope


Not personally liable; simply responsible for discharging the tax liability arising on income which has arisen on the deceased's estate between the date of death and the date the deceased's property is distributed to the beneficiaries.
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Re: Income during Administration Period

Postby cliffordpope on Thu May 17, 2012 8:48 am

Thank you very much.
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