What should you do about a deceased's tax liability?

We wrote in response to query 19,971 in Taxation magazine where a reader had asked what to do when a personal representative identifies profits undeclared by the deceased from sales on online market Ebay. The deceased was an active seller on the platform and the income was in the region of a few thousand pounds a year. The question was what are the personal representative’s (and indeed, the adviser’s) obligations in respect of the undisclosed income?

Where a deceased has undeclared UK income, HMRC have four years to raise an assessment and can then go back up to six years prior to the date of death. The assessment will be made on the personal respresentative. HMRC receives information directly from Ebay and other online marketplaces and therefore you must assume the department will become aware of the income particularly if there was a high volume of transactions.

Any tax that is owed by the deceased will come out of the estate and as such the estate should not be distributed while there are taxes owing. A disclosure should be made to ensure the estate is up to date and the personal representative should deal with the disclosure or instruct an adviser to assist.

As the disclosure would relate to an active seller on EBay, HMRC will likely consider this was trading activity and all proceeds (whether from personal goods or onward sales) would be considered part of the trade. This point should be considered carefully when making a disclosure.

When making the disclosure, you should also consider whether the deceased did not declare the income from Ebay as a result of carelessness or after having taken reasonable care. For example, the deceased may have considered that the proceeds were capital gains and below the annual exempt account, or that it was not taxable income (say hobby income less than £1,000). Depending on the type of self-employment business she was in, the deceased may have been unaware of her obligations in this regard. This is where a conversation with the personal representative would be helpful as he may have some insight as to why the income was not declared.

You as the adviser are under an obligation to advise the personal representative to make a disclosure and the personal representative is responsible for bringing the deceased’s estate up to date. If the husband knowing there is an issue does not make a disclosure, then he as personal representative is committing tax fraud. You would then have responsibility to make a report to your MLRO.

Since you are the accountant who prepared the deceased’s tax returns, you may need to consider whether the client has any claim against you. Many advisers will prepare tax returns based on information provided by the client. Thus, if the client did not provide details of the income even though you had explained that all income should be disclosed, there should not be a claim. If the client had advised you of the Ebay income and it had mistakenly been overlooked, this is a different situation and you would need to consider whether the personal representative may have a claim against your firm and whether to notify your insurers.

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