TSEM7356 - Deceased persons: what personal representatives do
Personal representatives must identify the deceased's assets and if necessary, realise them (turn them into cash). They must settle the deceased's debts including any tax liability. They must pay any inheritance tax that is due. They have also to pay out any legacies.
Then they pay out the residue (what is left after settling debts and legacies) to the beneficiaries in accordance with the terms of the will or the rules of intestacy. Sometimes this may involve setting up a trust.
While taking these actions they will probably receive income from investments or other property left by the deceased. They may also receive income from bank/building society accounts that they open to hold the funds realised.
The income they receive is that of the personal representatives as it is paid or credited. They are liable to income tax at the basic rate, savings rate (for years where this rate applies) or the rate applicable to UK dividends, depending on the year and the source of the income. But they are not liable to either the starting or higher rates of tax, because these rates apply only to individuals.
From 6 April 2024 estates with income of all types up to £500 will not pay income tax on that income as it arises. Where income exceeds that amount, tax will be payable on the full amount. ITTOIA/s649
For estates, the £500 tax-free amount will apply:
for every tax year of administration, but unused amounts do not roll over to subsequent years when reporting under informal procedures
to all types of income, after taking off ISA income which continues to be exempt after a person has died until closure or up to 3 years following the death
Personal representatives may also be liable to capital gains tax if they dispose of assets during the period of administration (CG30200 onwards). For disposals of residential property, a report to HMRC is required on most sales of UK property within 60 days, report and pay Capital Gains Tax.
Where there is liability to either income tax or capital gains tax, HMRC needs to deal with this tax liability either through the informal payment procedures set out at TSEM7410 or via the Self Assessment regime.