Dealing with the death of someone you know, whether family, friend or colleague is an extremely emotional process. Unless you have experienced this in your life before, having to make arrangements for someone’s estate can be quite daunting.
The person dealing with the estate of the person who has died is called a Personal Representative, the term also including an Executor or Administrator. This is the person appointed by the probate court to administer the estate of a person who has died. As part of their responsibility the Personal Representative of an estate has to consider the tax implications arising within that estate.
Capital Gains Tax within the administration of an estate is an area where Personal Representatives often seek our advice. In principle any disposal of assets by the estate results in a Capital Gains Tax disposal, with the exception of assets transferred to beneficiaries. Any capital gain arising on the disposal of any assets is calculated by reference to the net sale proceeds, less the probate value at death. An additional expense may be allowable under an HMRC provision whereby the Personal Representatives can claim a scaled expense towards the cost of establishing title, in computing the gains or losses of the Personal Representatives on the sale of assets in a deceased’s estate
The Personal Representatives are entitled to claim the full amount of the annual Capital Gains Tax exemption in the year of death, and depending on when the estate is finalised this can also be claimed for up to two tax years following the year of death. If the administration of the estate continues beyond this period no further annual exemption is allowed. This is an important point to consider where there may be a need by the estate to sell assets, for example to raise money to pay debts. Planning the sale of assets over a three year period would allow the estate to benefit from three annual exemptions, which totals £12,000 for the current tax year 2019-20.
If the estate disposes of assets which result in a chargeable gain the Personal Representatives are responsible for paying this out of the estate. In an earlier article we highlighted the different conditions under which the estate is considered a complex estate for tax purposes and these should be considered in conjunction with any disposals, both in terms of how much tax is payable by the estate and the total value of the assets being sold.
The current rate of tax payable by an estate on any chargeable capital gains, other than residential property, is 20%. The current rate of tax payable by an estate on any chargeable capital gains on residential property is 28%.
We are happy to advise Personal Representatives on their responsibilities in respect of Capital Gains Tax. We can assist in dealing with the registration of estates and the completion and submission of tax returns, or if appropriate, assess and correspond with HMRC for estates being dealt with under an informal process.
For further advice on this and other related issues, please contact our Wills, Tax & Estate Administration department.