My client invested in a DGT 5 years pre-death - she passed early 20/21 and the Tax Return for 20/21 was finalised and submitted - she was a basic rate taxpayer.
The policy was held in Trust but the Trustees decided, late in the 20/21 tax year to cash-in the policy due to the significant income tax saving that would be possible - where a policy is held on trust, the settlor of the trust will normally be chargeable if still available to charge. A settlor who dies may in some cases be chargeable on an event occurring after death, for example where the policy held by trustees is on the life of someone other than the settlor and continues following the settlor’s death (which it did in this case).
When a chargeable event occurs after a UK resident settlor’s death, but before the end of the tax year, the gain will be chargeable as part of the total income of the deceased settlor for that tax year - by virtue of ITTOIA 2005 Section 465(3).
I have the s844 Chargeable Event Certificate and have calculated that the Top Slice when added to the Settlor's income for 20/21 would still leave her in the basic rate, and with the attached basic-rate tax credit, no further income tax liability arises.
My question is do I need to report this given there is no tax liability, and if I do (which I suspect I should), how to do so - by amending the year of death tax return or via a letter?
Thanks in advance.