When an individual dies it can take months or even years to wind up the estate and pay out the funds to all beneficiaries. In the meantime, those funds may earn bank interest.
Since 6 April 2016, interest from banks, building societies and NS&I is paid without
tax deducted, but it is taxable. Most people have a £1,000 or £500 annual savings allowance
to cover that interest, but executors of deceased estates don’t qualify for a savings allowance.
The executors should inform HMRC of all the income the estate receives, so that they can complete a tax return and pay the tax due. This would impose an increased administrative burden on small estates where the only income to report is a small amount of bank interest.
To prevent this paper chase, HMRC has said it won’t require executors or trustees to notify them of taxable interest received, where the tax due on that interest is less than £100 for the year. This gives the estate or trust an effective savings allowance of £500.
If you are unsure about any aspect of this please contact Vincent & Co as we can help you through this trying time.