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Client sadly passed away....

A client has sadly passed away. A very difficult time.

A family member - who was/is employee of the business - is continuing to run the business - with a view to selling up.

Does the family member continue to be employee of the estate?

Does post death income get reported as income of the estate - if so how and when?

Or does family member have to register as self employed and run the business as a sole trader?

Apologies if these seem basic - Ive never experienced death of a client before.

Any advice/experience is very much appreciated.

Rgds

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15th Jul 2011 10:51

Death of client

Is there a will ?

If an executor has been appointed all instructions emanate therefrom and the "employee" should look to him/her for instructions from which the employment status can be clarified. The executor's duty is to protect the assets of the estate, wind it up and distribue the net proceeds in accordance with the wishes of the deceased. This may be to continue to operate the business prior to it's sale. However I have come across cases where the deceased wanted the business to cease with death (that caused a lot of problems but was acted upon).  

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15th Jul 2011 11:08

thanks very much bernard

It is the wish of the estate for partner to continue as employee - so that answers that - thank you.

So, I think the estate will continue to run the business until buyer is found and any income  tax issues (gain or loss) will fall to the estate in the meantime - just not sure how income tax is reported for estate - is it a normal tax return??

Also, CGT - I understand estate acquires assets at current market(i.e probate) and in the event of sale CGT due falls to the estate (with esate being entitled to cgt allowance). Is it possible to split assets between estate and remaining partner in order to have 2 x cgt allowance ?? - If so any paperwork needed or is it just reported on tax return/other form(for deceased).

 

Many thanks and rgds

 

 

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By John R
15th Jul 2011 12:04

Sole trader or partnership?

Your original post stated that a family member was the "employee" now running the business whereas your later post refers to a "partner". If the business was run as a partnership you will need to refer to the partnership agreement which, if there is one, would usually set out the position on death. This may not have been in writing so some digging may be required to establish the intentions of the partners. If there is no partnership agreement, the Partnership Act 1890 will be in point.

If your reference to "partner" meant "common law spouse" rather than business partner, then any capital gains tax accrued up to the date of death of the sole trader will be wiped out although, of course, there may be inheritance tax due. The Executors will be deemed to have acquired the assets at market value (probate value) at the date of death and they will be responsble for capital gains tax arising from the date of death to the date of disposal and any such tax will be payable from the Estate. On the other hand, if the assets are distributed under the Will to the beneficiaries, they will individually acquire the assets at the Probate value and will be entitled to their own exemptions when the assets are sold. If the beneficiaries run the business themselves as sole trader or in partnership then they may be entitled to entrepreneurs' relief on eventual disposal, subject to the usual conditions.

As you have little experience of such matters, you may need to hand this case to someone with such experience or obtain consultancy advice to avoid having to spend many hours researching the rules. This is a major subject not to be underestimated in terms of the considerable grief (forgive the pun) that can arise if the solicitors and accountants get things wrong.

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15th Jul 2011 15:44

I had one of those many years ago.
Client ran a cinema showing (ahem) "continental" films and suddenly upped and died leaving me as executor.

I "had" to continue to run this business so as to get the most advantageous price on its sale. It certainly was an education choosing the films for each week - and rather fun too!!

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