This is one of a number of explanatory articles, part of a set copied under licence from H M Revenue & Customs website:
Introduction – Is Inheritance Tax due?
Calculating Inheritance Tax
Valuing assets
Responsibilities of personal representatives
Business relief and businesses
Discretionary trusts
Deceased left no will
Pensions
Agricultural relief
Deceased's liabilities
Foreign aspects
Joint property
Penalties
Settled property
Woodlands
Probate
Alter Inheritance tax
Gifts
Excepted estates
Paying IHT
Thresholds and Interest
Introduction
This guide is designed to help our customers to obtain a grant of representation, complete an account of the deceased's estate, and pay any inheritance tax (IHT) which may be due.
It also gives advice about lifetime gifts and the taxation of discretionary trusts.
The proposals in the Finance Bill 2006 affect the meaning in this article regarding:
- gifts into certain kinds of trusts
- the tax treatment of trusts, known as interest in possession trusts, in which the beneficiaries have a right to benefits
- the ending of an interest in possession during a beneficiary's lifetime
- the treatment of funds in alternatively secured pensions on death.
This article will be updated as necessary when the Finance Bill is enacted.
What is a personal representative?
When someone dies, the personal representative is the person who administers the deceased person's estate. If they are named in the will they called the executor. If there is no will, or they are not named in the will, they are known as the administrator.
In Scotland, a personal representative is called either the executor-dative or the executor-nominative.
We refer to both executors and administrators as personal representatives.
What type of grant of representation should I take out?
If you are named as the executor under a will, you will take out a grant of probate. If you are an administrator you will take out a grant of letters of administration or letters of administration with will annexed.
There are other grants which are less common, such as a grant of administration de bonis non. Information on other types of grant can be found in the IHT manual.
I am acting as a personal representative, what do I need to do?
If someone appoints you as a personal representative, you will need, amongst other things, to find and value the deceased's assets, provide information to Capital Taxes, and pay any inheritance tax which may be due. You will also need to apply for a grant of representation.
How do I find the deceased's assets?
Make a thorough search of all the deceased's papers about their financial affairs. Make a rough list of their assets, investments, their other financial interests and the debts they owed when they died.
If the deceased had to fill in Self Assessment tax returns, they may have kept records to fill in those forms and these may help. Bank statements and building society passbooks may help you to discover whether any gifts were made. Remember that although the income from certain assets such as PEPs, TESSAs and ISAs is not liable to income tax, both the capital and the income are liable to inheritance tax and must be included.
You may also find it useful to ask others what they knew of the deceased's affairs. People who might be able to help are:
- any solicitor or accountant who dealt with the deceased's affairs,
- the deceased's close family (especially to discover gifts),
- anyone named in the will who might know about the deceased's affairs,
- any close business associates of the deceased,
- the deceased's bank, stockbrokers or other financial advisors (the bank may have other papers or valuables lodged with them for safekeeping).
You will need to make quite detailed enquiries so that you can find out about everything that makes up the deceased's estate. It is very important that you provide full and accurate information because you may make yourself liable to a financial penalty if you provide information incorrectly due to your negligence or fraud.
How do I value the deceased's assets?
When you have completed your rough list of assets etc, you will need to find out the value of each of the assets concerned. It is important that you value the assets correctly, because you may make yourself liable to a financial penalty if you are negligent in arriving at the value.
What about assets owned jointly with other people?
If two or more people own an asset, it is known as a 'joint asset'. Normally those people will hold the asset in joint names, although sometimes someone else (e.g. a trustee) may hold it in their name for two or more people who share ownership of the asset. The way they own the assets will affect how we will deal with the assets on the death of one of the joint owners.
What must the personal representatives tell Capital Taxes, and how?
It is the personal responsibility of the personal representative to provide the account of the estate. If the estate qualifies as an excepted estate, you will need to complete a form IHT205 if the deceased died in England, Wales or Northern Ireland, or a form C5 and Inventory form C1 if the deceased died in Scotland. To find out if the estate you are dealing with is an excepted estate, follow this link.
If the estate is not an excepted estate, you will need to deliver an account of the estate of the deceased on form IHT200. In Scotland, where you apply for confirmation, our requirements differ slightly and an inventory form C1 is required in addition to the IHT200.
However, throughout the United Kingdom, if any tax is payable, you must deliver an account to us and pay the tax for which you are responsible before you can get a grant of representation or confirmation. The only exception is where you can pay tax by instalments.
When do I have to send the account in?
If you are the personal representative of an estate which is not an excepted estate, you should send in an account within twelve months after the end of the month in which the death occurred. So, if Jane died on 15 July 2005 the account should be delivered by 31 July 2006.
The same time limit also applies to trustees who need to deliver an account of settled property and anyone who is liable for the tax on a gift.
If you send in the account late there may be a penalty to pay, unless you have a reasonable excuse.
The only exception to the twelve month time limit is where, for some reason, the personal representatives of an estate do not start to act as personal representatives for some time after the death. They have three months from the time they started to act as personal representatives to deliver the account, if that date would be outside the original twelve month time limit.
Example
David died on 13 December 2004. Normally, an account should be delivered by 31 December 2005.
Alice was named in the will as the executrix of the estate, but she had moved abroad and lost contact with the family. A solicitor finally managed to contact her on 4 November 2005 and she agreed to act as the executrix.
Alice then has until 4 February 2006 to deliver the account.
Woodlands and conditionally exempt property
If an IHT charge arises due to the transfer or sale of woodlands which benefit from woodlands relief or the sale or transfer of conditionally exempt property, the time limit for delivery of an account is six months from the end of the month in which the transfer occurred.
Who is liable to pay the inheritance tax on the deceased's estate?
The personal representatives are liable for inheritance tax on
- assets that were not held in trust, and
- land in the UK, held in trust, which comes into their possession.
They must also tell the trustees of any trust the deceased had an interest in, that they are liable for the inheritance tax on the assets in that trust.
How do I apply for a grant of representation?
There are slightly different processes to follow depending on whether you are applying for the grant in England and Wales, Scotland or Northern Ireland.
In England and Wales you apply to the Probate Service.
The Probate Office will send you a booklet, 'Dealing with a deceased's person's estate' that will tell you what to do.
In Scotland you should follow the instructions here.
What if I make a mistake in the account?
If you find that the details you have supplied are wrong or incomplete you must tell us immediately.
If you applied for an excepted estate grant and after you have got the grant, you find some more assets, or you discover the value of an asset has changed, making the estate over the threshold for inheritance tax, you will need to complete a corrective account, form C4. Copy the figure from box J on form IHT205 to page 4 of the Corrective Account and fill in the rest of that page.
You must send form C4 to us within 6 months of finding out about the change to the estate. If you are late in sending the form to us, you may make yourself liable to financial penalties.
You can work out the tax that is payable by deducting the IHT threshold from revised value of the estate and taking 40% of that amount. You might need to add some interest to the tax that is due. Interest runs from 6 months after the end of the month in which the death occurred. You can find the correct rate of interest in our leaflet IHT 4.
Tell me about penalties
It is important that you provide a full and correct account (and an additional account, if necessary), because you can incur penalties if you:
- fail to deliver an account or you deliver an account late
- submit incorrect accounts negligently or fraudulently
- submit supporting information or documents negligently or fraudulently
- unreasonably delay notifying us of further assets or correct values, which come to light after you have delivered an account.
What if I need a grant of representation or confirmation urgently?
If you obtain a grant of representation or confirmation too quickly, without making proper enquiries to establish the extent and value of the estate, you may become liable for a penalty for submission of an incorrect account. There are, however, some exceptional occasions when you may have a genuine need to obtain a grant of representation urgently, before you have had the opportunity to make all the enquiries normally required. If you think you need to obtain a grant of representation quickly, we are happy to discuss the matter with you.
What do I do with all the papers when I have filled in the forms?
- Keep a copy of the signed forms for your records
- Keep all the records and papers you have used to fill in the forms in case we ask to see them later
- When sending forms to Capital Taxes, the forms and any attachments should have a simple staple, paperclip, or hole-punch and tag in the top left-hand corner. Please do not use spine binders, corner binders or anything else which may be difficult for our post room staff to remove. | 
