Deceased Estate Management Expenses – What can be done with them?
Tax Question
Deceased Estate Management Expenses – What can be done with them?
Tax Answer
Deceased estate management expenses are not deductible against income tax when calculating the income tax due during the administration period of a deceased person’s estate; only expenses incurred wholly and exclusively for the purpose of any trade or property rental business would be deductible against the income generated.
Examples of general estate management expenses which would not be deductible against income tax would be:
- Executor’s administration fees
- Accountancy and tax return preparation
- Bank charges
- Investment management or adviser charges
https://www.legislation.gov.uk/ukpga/2005/5/section/34
https://www.legislation.gov.uk/ukpga/2005/5/section/272
https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem7678
Are there any exceptions to this rule?
Yes, a loan to a personal representative that meets the conditions can be deducted from income before calculating the income tax due for the administration period. The general rules are that it is a loan taken out to settle the IHT liability of the estate, and the interest is only deductible on the first loan taken out for the first 12 months. This means if there is an error and the IHT of the estate must be revised, then no relief for interest is given on the additional loan.
https://www.legislation.gov.uk/ukpga/2007/3/section/403
How do estate management expenses impact the administration period in the practical sense?
Estate management expenses must be set first against dividend income; if this exceeds the amount of dividends received, then it should be taken against savings income and non-savings, non-dividend income. In the event that the estate management expenses actually exceed the amount of income in a particular tax year, they can be carried forward and set against the next year’s income in the same order.
| Example | ||||||||
| Terry Hughes died 6th December 2024, the following income and expenses were received and paid during the administration period up to 5 April 2025: | ||||||||
| Rental income | 700.00 | |||||||
| Bank Interest | 200.00 | |||||||
| Dividends | 300.00 | |||||||
| Expenses | ||||||||
| Estate agent’s fees for rental property | – 150.00 | |||||||
| Loan interest on loan to pay IHT (first 12 months) | – 500.00 | |||||||
| Estate management expenses | – 150.00 | |||||||
| STEP 1 – Income & Expenses | ||||||||
| Taxable Income | Non-savings, non-dividend | Savings income | Dividend income | |||||
| Rental income £700 – £150 = £550 | 550.00 | |||||||
| Interest | 200.00 | |||||||
| Dividends | 300.00 | |||||||
| Total income | 550.00 | 200.00 | 300.00 | |||||
| STEP 2 – Deductible Interest | ||||||||
| Deduct: | ||||||||
| Interest payable on IHT loan | – 500.00 | |||||||
| Taxable income | 50.00 | 200.00 | 300.00 | |||||
| NSND rate (20%) | 10.00 | |||||||
| Savings rate (20%) | 40.00 | |||||||
| Dividend rate (8.75%) | 26.25 | |||||||
| 10.00 | 40.00 | 26.25 | ||||||
| Total tax liability | 76.25 | |||||||
| Less: Tax deducted at source | – | |||||||
| Tax payable 2024/25 | 76.25 | |||||||
| Less payments on account made | – | |||||||
| Total tax due for 2024/25 | 76.25 | |||||||
| STEP 3 – Application of Estate Management Expenses | ||||||||
| Distributable income 2024/25 | ||||||||
| NSND | Savings | Dividends | ||||||
| Income | 50.00 | 200.00 | 300.00 | |||||
| Less Tax (Calculated above) | – 10.00 | – 40.00 | – 26.25 | |||||
| Net income | 40.00 | 160.00 | 273.75 | |||||
| Less: EME | – 150.00 | |||||||
| 2024/25 distributable | 40.00 | 160.00 | 123.75 | |||||
| STEP 4 – R185 entries for 1 beneficiary | ||||||||
| R185 – 2024/25 | Gross | Net | Tax | |||||
| NSND income | 50.00 | 40.00 | 10.00 | |||||
| Savings income | 200.00 | 160.00 | 40.00 | |||||
| Dividend income | 135.62 | 123.75 | 11.87 | |||||
The total tax on the R185 is £61.87; however, the personal representatives paid £76.25. Why is there a difference? This is because the estate paid the £150 estate management expenses out of dividend income, meaning we do not have this income to distribute; thus, £150/91.25*8.75 = £14.38 is the tax credit that has been lost. Whilst estate management expenses reduce distributable income, they do not create an equivalent tax credit, which effectively increases the tax borne within the estate.
| How would this have been different if the estate management expenses were £1,500? | |||
| Distributable income 2024/25 | |||
| NSND | Savings | Dividends | |
| Income | 50.00 | 200.00 | 300.00 |
| Less Tax (Calculated above) | – 10.00 | – 40.00 | – 26.25 |
| Net income | 40.00 | 160.00 | 273.75 |
| Less: EME | – 40.00 | – 160.00 | – 273.75 |
| 2024/25 distributable | – | – | – |
| R185 entries for 1 beneficiary: | |||
| R185 – 2024/25 | Gross | Net | Tax |
| NSND income | – | – | – |
| Savings income | – | – | – |
| Dividend income | – | – | – |
| Estate management expenses offset | |||
| Total paid 24/25 | – 1,500.00 | ||
| Offset against dividends 24/25 | 273.75 | ||
| Offset against savings and NSND 24/25 | 200.00 | ||
| Balance carried forward | – 1,026.25 | ||
For more information, please contact us at: consultancy@vantagefeeprotect.com
Gavin Anderson
Tax Advisor
Related Tax Questions
HMRC Nudge Letters
My client, a limited company, has recently received from HMRC a letter stating that they believe that the company may have paid the wrong amount of corporation tax. The letter asks my client to che
UK and USA DTT
I have a UK company that trades in the USA through an individual agent who is a USA resident. What are the tax implications of this arrangement, please?
Accommodation Benefit in Kind
My client is a limited company that owns a dwelling house that cost them more than £75,000. The dwelling is currently occupied by a director who is paying market value rent to the limited company.
Beneficial Loans and Interest Paid
I have heard that the benefit in kind on the notional interest on a director’s loan account may be side-stepped by debiting the loan account with the interest on the beneficial loan. Can you expa
Changes to NI and Employment Allowances
National Insurance – what’s changed?
P11D and P11D(b) Late Filing
What is the P11D deadline and what are the penalties if submitted late?
Real people, real results
Vantage Fee Protect provide market leading Tax Fee Protection
Insurance schemes through accountants.
Don’t be shy,
get in touch
Vantage Fee Protect provide market leading Tax Fee Protection
Insurance schemes through accountants.
"*" indicates required fields