Administering an estate involves more than distributing assets; it requires careful attention to tax obligations, particularly Income Tax and Capital Gains Tax (CGT). Overlooking these can lead to costly errors and delays.

One common pitfall is failing to account for Income Tax on the estate’s income during the administration period. Executors must report and pay tax on income generated by the estate, such as rental income, dividends, or interest. If this is not properly declared, HMRC may impose penalties and interest, even if the oversight was unintentional.

Capital Gains Tax presents another challenge. Executors may need to sell assets to settle liabilities or distribute funds. If those assets have increased in value since the date of death, CGT may be payable on the gain. A frequent mistake is assuming that CGT does not apply during administration, or failing to use available reliefs such as the annual exemption for estates.

Timing is also critical. Delays in valuing assets or submitting tax returns can result in missed deadlines, leading to penalties and increased scrutiny from HMRC. Executors should also be cautious when distributing assets before tax liabilities are settled, as they may be personally liable for any unpaid tax.

Seeking professional advice early in the process can help avoid these pitfalls. This is where we can assist by providing invaluable advice, ultimately protecting the estate and the executor from unnecessary risk.