In part one of this blog, we looked at establishing whether there is a Will, who the executor and beneficiaries are and the extent and value of the estate. In the second part of this blog we will look at the steps which must be taken to report the estate to HMRC for Inheritance Tax (IHT) purposes (if required) and make the application for the Grant of Confirmation, as well as ingathering and distributing the estate.

Dealing with IHT

When an estate is subject to IHT the executor requires to complete an IHT return (form IHT400) to report the estate to HMRC prior to making the application for Confirmation. Some estates require to be reported to HMRC even where there is no IHT to pay. When calculating the IHT the executor must consider if there is any unused transferable nil rate band available for transfer from the estate of a predeceasing spouse or civil partner and whether residence nil rate band applies. Some or all of the IHT must be paid before the application for Confirmation is made, or within six months of the date of death, whichever is earlier. Where the estate includes land or buildings the executors can choose to pay the IHT by way of 10 annual, interest paying instalments. The instalment option must be ceased and the IHT and interest paid when the property is sold.

Did the deceased make any gifts within seven years of their death?

For IHT purposes the executor must establish if the deceased made any gifts within seven years of their death. The value of any lifetime gifts not covered by exemptions and allowances are added to the value of the deceased’s estate for IHT purposes and must be reported to HMRC. IHT may be due on any estate over the value of the IHT nil rate band (the first £325,000 which is free from IHT). There may also be IHT to pay on the gifts themselves (by the person who received the gift) if the value of the gifts exceeds £325,000.

Applying for Confirmation

The application for Confirmation comprises Form C1 and an inventory of the assets of the estate. Inventory of Estate Form C1 also includes details of funeral expenses, debts and liabilities and a declaration which the executor must sign.

Form C1 and the Will are then sent to the Sheriff Court and, if the Sheriff Clerk finds everything in order, Confirmation will be granted. Where there is no Will a Bond of Caution may also be required.

Bond of Caution

A Bond of Caution must be obtained before the application for Confirmation can be made. It is a type of insurance policy and the amount of caution is equal to the gross value of the estate in the UK. The Bond is required by law and is to protect the beneficiaries from an executor who fails to distribute the estate properly. It is required where there is no Will, unless the entire estate will be inherited by the surviving spouse or civil partner or the estate is a small estate (one which is less than £36,000). You can find out more about Bonds of Caution in our article What is a Bond of Caution and do I need one?

Ingathering and distributing the estate

Once Confirmation has been granted, the executor can begin to ingather the estate. In the case of cash assets, insurance policies and investments, certificates of Confirmation are sent to the financial organisations with a request to close the accounts and release the proceeds. In the case of property and investments Confirmation gives the executor authority to sell or transfer the assets on behalf of the beneficiaries. The executors may also have to consider the potential Capital Gains Tax (CGT) implications of any sales.

The executor should arrange payment of the debts and liabilities of the estate before making distribution to the beneficiaries. Once funds are available the executor can then deal with any cash and specific legacies in terms of the Will or the Prior and Legal Rights of the spouse or civil partner and children if there is no Will. When all matters have been finalised, including agreeing the IHT position with HMRC and dealing with any income tax, the residue of the estate can be distributed. The residue is everything that is left after settlement of funeral expenses and liabilities, IHT, specific and cash legacies, Legal and Prior Rights and the expenses of winding up the estate. At the end of the administration an executry account is usually prepared and copies passed to the beneficiaries, once the executor has approved this.

Executry and Estate Planning Solicitors, Edinburgh

Winding up an estate in Scotland can be challenging and there are many things to be considered. The executor must deal with all aspects of the estate diligently and promptly. Failure to deal with any aspect of the estate can lead to delays and additional expense. It is important to instruct a solicitor with expertise in dealing with winding up estates.

Jennifer Gray is a Senior Paralegal and specialises in the administration of executry estates. This article focuses on the position in Scotland. The position in England differs and Murray Beith Murray have dual qualified lawyers who can advise on both jurisdictions.

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