Laura Cowan

Laura Cowan is head of Graysons’ private client department and leads an accomplished team.  Laura is a chartered legal executive, being a fellow of the Institute of Legal Executives (FILEX), and a trust and estates practitioner with full membership of STEP (Society of Trust and Estate Practitioners).   She has around 20 years’ experience in estate administration and has handled many high-value and complex cases. Here, Laura gives an insight into issues that affect the administration of estates of high-net-worth individuals

Estate administration

In the first instance, the administrator must clearly understand the estate in terms of assets and liabilities to be able to properly administer it.

High-value estates often include a variety of private and business assets and liabilities, some of them held in different jurisdictions, different trusts and some of which may be jointly owned.  Assets and liabilities need to be accurately valued to ensure that the correct amount of tax is paid and the estate is properly distributed.  These estates often involve the completion of complex documentation, which can be daunting if the administrator is not experienced in this field. Legal, financial and property professionals are likely to be involved and the administrator must understand the language and practices of these people so that the estate is managed efficiently.

Businesses

Some high value estates will include business assets.  Ideally, the deceased will have put a business will in place that identifies issues, such as:

• who business assets pass to (this could be different to the other beneficiaries of the estate)
• other business agreements that might have an effect on a will
• whether a business has been left in trust
• any tax efficiency measures that have been taken.

A business may still be in operation and may need someone to take care of day-to-day running, such as paying wages and managing the accounts.  The administrator may need to take on these tasks, so should be sure that they have the experience to do so.

Tax issues

High-value estates are very likely to encounter various tax issues.

Inheritance tax

No matter the value of the estate, inheritance tax (IHT) must be paid at 40% on any amount above the nil rate band currently £325,000 plus the main residence nil rate band currently £175,000 (if applicable).  Administrators may find that some high-net-worth clients have taken measures to mitigate their tax burden through the use of trusts, lifetime gifts and other tax planning methods. This can create a very complex estate that requires specific knowledge and skill.

Estates that include a business may have taken advantage of various tax reliefs, such as agricultural or business relief, which can reduce the amount of IHT payable.  These relief rules are particularly complicated and require careful navigation. Also, the deceased may have left some of their money to charity, which will reduce the amount of IHT payable if the amount that goes to charity is at least 10% of the value of the estate.

It is usual for IHT to be payable before probate can be applied for.  Payment is expected at the end of the sixth month after death. This can be a significant issue with high-value estates where there may be a considerable IHT liability. However, the administrator should check to find out if the deceased has taken out insurance to cover IHT.

The administrator will need to complete an inheritance tax return which is a lengthy document requiring evidence of the deceased’s assets.

Where the estate includes property, staged payments may be accepted by HMRC until the property is sold, or, if funds are to be paid directly to HMRC, a bank might release money before probate is granted.  The administrator must fully understand IHT to be able to negotiate the implications of the deceased’s decisions and actions.

Income tax

Income tax will be payable if the estate continues to earn income, for example on property that is rented out, dividends or interest on savings. This will need to be reported to HMRC. If the estate is valued at over £2.5 million, or the total income tax and capital gains tax due is over £10,000, or more than £500,000 worth of assets have been sold in any single tax year during the administration period, the administrator will need to complete a self-assessment form for the estate.

Capital gains tax

Capital gains tax (CGT) is payable on any profit made by the estate, that is the difference between the value of the assets at death and their value at disposal – less any costs related to the sale of the assets.  Everyone has an annual CGT-free allowance, which is £3,000 from April 2024.

The current rate of CGT on chargeable capital gains for trustees or personal representatives of someone who has died is:

• Trustees or personal representatives of someone who has died – 20% (not including residential property).
• Trustees or personal representatives of someone who has died – 28% for disposals of residential property.

Any CGT to be paid on residential property sold that belongs to the estate must be paid within 60 days from the date of completion.   Where a significant amount of CGT is payable or assets of a significant value are sold, a trust and estate tax return must be completed.

Liabilities and debts

High-net-worth estates may include complex debts and liabilities, as well as the usual mortgages, loans and credit card bills, particularly if the estate includes a business.  Here, as well as tax (including VAT), there may be business loan guarantees, equipment leasing, supplier debts or accountants’ fees for example.  Where these complex business-related liabilities exist, they must be dealt with professionally to ensure that the correct figures are obtained and settled.  Administrators may need to negotiate with these creditors and again, professional advice is recommended in such cases.

Administrators must deal with all debts before any estate is distributed.  Administrators can be held personally liable for debts up to the value of the estate if they are not all properly paid.  This includes when a creditor that the executor did not know about makes a claim against the estate.

Assets held abroad

High-net-worth individuals often hold assets overseas.  When an estate includes these assets, the administrator must understand international laws and the tax implications of the jurisdictions involved.

Using a lawyer to administer a high-value estate

High-value estates are generally complicated, and administrators need to understand their duties and be able to deal with complex legal principles.  They need to be able to liaise and negotiate with a range of professionals.  A lawyer who is experienced in high-value estate administration can ensure that the will is interpreted accurately and that all the legal requirements are adhered to.  They can ensure that assets are valued properly, debts are paid correctly, businesses are dealt with appropriately and can offer legal guidance where necessary.  An experienced lawyer will fully understand the intricacies of tax and be able to complete the tax forms and ensure that the correct amount of tax is paid.  They are independent of the beneficiaries and will have the experience to be able to deal with any conflict.

For further information and advice on dealing with high-value estates, contact Laura Cowan

Author: Laura Cowan, head of Graysons’ private client department.