Having “identified a recurring issue in the administration of estates”, HMRC has used the latest edition of its Agent Update newsletter to clarify the use of informal and formal reporting arrangements.

Reporting requirements 

No report is required where: 

• there are no chargeable income or gains during the administration (including where the estate’s income for the tax year is less than £500 tax-free amount); and 
• no claims to relief or elections are made.  

Where a report is required, the nature of the requirement is determined by whether the case is complex. Generally, HMRC regards an estate as complex where at least one of the following conditions is met: 

• The tax liability for the whole of the administration period is in excess of £10,000.
• The estate has a value at the date of death in excess of £2.5m. 
• The proceeds of assets sold by the personal representative in any one year exceeds £500,000.
• The personal representatives (PR) for a complex estate must report formally via Self Assessment (SA).  

For non-complex cases (‘simple estates’), personal representatives can report using informal payment procedures, avoiding the need to complete a SA tax return. Instead, the PRs must write to HMRC with the details at the end of the administration period. HMRC will then issue details of how to pay any tax the estate owes. For guidance on reporting using informal payment procedures, see HMRC’s online guidance or TSEM7413. 

HMRC guidance

In the latest issue of its Agent Update newsletter, HMRC is reminding agents that the question of formal versus informal reporting is determined for the whole of the administration period (ie, from the date of death until the estate is fully administered), and not on a year-by-year basis. 

Where an estate is regarded as formal, and so is registered for SA, it is not possible to switch to the informal reporting procedures at a later date. However, it is possible to move from informal to formal arrangements where an estate becomes complex (for example, due to changes in income, gains or claims).

HMRC says that: 

• If a notice to file has been issued for a tax year but there are no income, gains or claims to losses or reliefs to report, the agent should contact HMRC and ask to cancel the notice to file for that year.
• SA returns should not be submitted for informal estates. HMRC will treat such a return as a voluntary return. Although no automatic late filing penalty will be charged, late payment interest and late payment penalties may still apply.
• Where an estate needs to move from informal to formal arrangements, the agent should:
  • write to HMRC at the same time as registering the estate for SA on the Trust Registration Service (TRS). The information to be provided is set out in the Agent Update; and
  • report income and gains relating to the pre-registration period informally, with post-registration income and gains reported through SA.
• Where an estate is informal and stays informal, income and gains should be reported once, at the end of the administration period (ie, not every year). Any tax due should be settled in a single payment once HMRC has provided a payment reference.