Self assessment for deceased

Would you try and bring the tax position of a deceased person up to date

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My client is an executor of his mother-in-law's estate. He has dealt with IHT on death and CGT on the sale of the house between probate value and actual sale value. The estate is not my client.

However, it's becoming clear that in the years up to her death, she never completed a self-assessment return. Her pension is PAYE'd but there was a rental property and a small amount of dividends. So historic tax to pay going back many years which is entirely undeclared.

So where do we go next? The estate isn't liable for any income tax in its own right, but it should pay her historic liabilities- one of which happens to be income tax. Were she still with us, then my advice would be clear - let's fess up to HMRC and get you up to date. But in her absence - is this income tax owing by the estate?  How would you even start to do SATRs for someone like that - we have some records but not many so any SATR would be an estimate on our part, no ability to get her to sign the return or a client care letter etc etc! Could the estate be a client? Even though it has no tax to pay?

To make matters muddier HMRC have sent their template letter to the executor saying they have true'd up the PAYE position and there is £nil to pay. So (and this probably too much of a slight of hand but...) we even have a letter from HMRC saying there is no income tax to pay! But then we know something they don't know.

Replies (13)

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By FactChecker
01st May 2024 17:28

I'm puzzled that your client (as Executor) was able to get Probate *without* HMRC being happy that there was neither a known Tax debt nor a gap in returns (giving the possibility of an unknown Tax debt).
Every single Estate that I've ever administered has received a NTF (typically for the previous 5 years - but sometimes as few as 3 or as many as 7 years) SA ... and without those (plus payment of any Tax then found to be due), no Probate.

However, assuming that there was no such notice, the issue is that in this case there were 'undeclared' taxable earnings.
Of course, we don't know the amount of Tax that may be at stake (i.e. all the rest of the deceased's circumstances) - or indeed over how many years (and whether any of those are for a year in which an incorrect return was submitted).

Anyway, I'd have thought the problem for your client (in his role as Executor as opposed to whatever relationship you now have with him) will lie in the various figures and statements he included in the IHT return that he signed - if your new 'discovery' means they were untrue (innocently or otherwise).

Final point: I'd be very surprised if the HMRC letter in your last para says anything on which you can rely as a 'defence' ... they're always carefully worded and will include somewhere a caveat something like 'on the basis of the data that you have provided to us at this date'!

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Replying to FactChecker:
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By richard thomas
02nd May 2024 13:03

I'm puzzled by your first sentence. On what legal grounds can HMRC object to probate, other than in relation to unpaid IHT? I would have expected any such rule to be in Part 5 Supreme Court Act 1981, alongside s 109 dealing with IHT.

Of course they can require returns of the executors, at least for 4 years (s 34A TMA), and they can make discovery assessments, subject to the time limit rules in s 40 TMA.

And I if tax has been lost (in the s 29 TMA sense) the existence of such tax would mean that any IHT will be overstated - I doubt HMRC are going to get concerned by that, though they may well query any claim to repayment of IHT on those grounds.

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Replying to richard thomas:
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By FactChecker
02nd May 2024 15:53

Puzzle no longer ... it was one of those (hopefully fairly rare) situations where I didn't bother to look anything up (despite a slight nagging feeling in the recesses of my mind) - on the basis that it was what I'd experienced on every occasion that I've been the Executor.

With hindsight I must have made a (faulty) assumption on the first occasion, that HMRC's demanding tone suggested they could 'block' Probate until all/any Tax of the deceased was agreed & settled, and then never had any reason to question that assumption in the future ... so just got on with completing the returns (as a rather simple adjunct to collecting all the info for the Estate in readiness for IHT calcs).

I've certainly been put through the wringer on the IHT side on at least a couple of occasions ... leading to my observation that 'if you can't get them to see sense then drown them in data/spreadsheets' which, as long those are summarised with the 'solution' that you've been proposing all along, tends to lead to acceptance by all!

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paddle steamer
By DJKL
01st May 2024 17:35

Executors can surely complete tax return for deceased, if they could not everyone would have to do a tax return up to their date of death and then die as soon as it was completed. (I completed and signed my late father's as one of his executors)

I think if I was a professional acting I would need to get estate to come clean, if not a SAR would be needed.

If not acting in a professional capacity I would still be mindful that if I, as executor, distributed the estate and HMRC came knocking I could be personally liable (why executors, if not 100% sure all claims etc met, sometimes take out indemnity policies)

I would certainly sleep better coming clean in case the sale of the property subsequently triggered some HMRC interest.

EDIT- the tax not paid is a liability of the estate not included within the Confirmation (Probate), if you fully distribute the estate you overdistribute the estate.

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By carnmores
01st May 2024 18:00

maybe its a trade off?

HMRC get more IHT

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By carnmores
01st May 2024 18:00

maybe its a trade off?

HMRC get more IHT

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DougScott
By Dougscott
02nd May 2024 09:20

What has this got to do with you? You are not the deceased's agent.

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By bernard michael
02nd May 2024 09:22

Been in a similar situation. With the agreement of the executor we brought the SAR's up to date. £15000 tax payable but no penalties incurred/waived

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By [email protected]
03rd May 2024 15:49

HMRC' s Let property campaign might well pick up arrears particularly whilst HMRC drip the results into their compliance take. Do you get in now when you can make an unprompted disclosure or wait and see.

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By Xtaxman
03rd May 2024 20:57

You only need to worry about the last 6 years before death.

Any assessment on the personal representatives to recover any tax lost as a result of

the careless or deliberate behaviour of the deceased (or another person acting on behalf of the deceased whilst they were alive), or
the failure of the deceased to notify chargeability to income tax and capital gains tax
may only be made for a year of assessment that ended not earlier than 6 years prior to the date of death (year of assessment in which they died).

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By The Brick
04th May 2024 09:44

Thank you everyone. It seems to me that although she may have forgotten and HMRC don’t know any better (hence the letter saying no more income tax to pay) the executor is still liable and it is the right thing to do.

We’re left with lots of practical problems- eg what was the rental income 6 years ago? (we certainly can’t ask her!). However, ultimately we can make educated guesses here and we should. Now to ask him whether he want to do it or whether I’m engaging with the estate.

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Replying to The Brick:
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By FactChecker
04th May 2024 12:54

"Now to ask him whether he want to do it or whether I’m engaging with the estate."

He might need to be pre-warned (given he "dealt with IHT on death and CGT on the sale of the house between probate value and actual sale value") that, if he DiY'ed all that, there may be further worms lurking and waiting to be found in the woodwork?
As in ... once HMRC start looking at the SA returns, they're unlikely not to cast a beady eye over any other 'related' returns (so make sure they're either watertight or are revised if necessary before they ask).

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