Income From Probate Property

[MistyMountainTop]

If a property is let out to provide income for care for an elderly person, and that person then dies when there is 10 months left on the tenancy, when does the income become part of the inheritors income and leave the estate? And whose tax return does the income go on if the death is in say December but probate isn't granted until the next September, ie the deceased owner is no longer alive for any of the second tax year, but the tenant cannot be evicted as they have a legal tenancy? The property and the people are all in England

surely the income is that of the estate and forms part of residue. Just the same as bank interest or dividends on investments.

The property won't be sold, it's been left to someone who will probably inherit it with a sitting tenant. So does it, and the income, belong to them as soon as probate is granted? They would want to move in as soon as possible but couldn't afford court fees if the tenant doesn't move out and has to be evicted, and it would mess up their UC for where they currently live. There are mild learning disabilities involved. It would be better all round if they didn't actually inherit until the property was empty.

Any income earned by the estate remains with the estate from the day after the death until the date everything has been distributed.

In the situation you give, it is the estate that is liable for the income tax. The gov.uk site explains things here:-

https://www.gov.uk/probate-estate/managing-and-selling-assets

There is no tax free allowance so 20% income tax is payable on any rental income less allowable expenses:-

https://www.gov.uk/guidance/income-tax-when-you-rent-out-a-property-working-out-your-rental-income#allow-expense

Once probate has been granted (which can easily take 8 or 9 months) the executors then have 12 months from the date that probate was granted to distribute any assets from the estate.

You mentioned September in your OP. If the executors were granted probate in September 2023 then they would normally have up until September 2024 to distribute the assets.

Only after the assets have been distributed would the beneficiary become liable for any income tax.

Thanks very much @Another2Cats so it looks like with the cooperation of the executors, the beneficiary would be OK waiting for vacant possession of the property - as long as the tenant moves out within 12 months of the grant of probate

Be aware the tenant does not have to leave at the end of the tenancy. The Executors may have to go through the eviction process e.g. serve S21.

That is exactly what we were afraid of (I wrote that in my second post) and that the beneficiary would be facing financial problems if so, moreso if he'd lost his HB element of UC due to having received rent.

I am not sure if the Executor can start the eviction process before probate is granted. You/the executor need legal advice.

However, the executors shouldn’t/can’t transfer the property until they have vacant possession.

If the recipients of the property inherit it subject to the tenancy then that's not necessarily fatal to their UC claim. Provided they're taking steps to recover possession, for example going through the S21 process, then the property's value can be disregarded.

Rent received is not income for UC but rather treated as Capital.

Thanks @Sisterpita , that is what we assumed but we were looking for some advice from a solicitor (I know that many post on here) so that we could help the beneficiary with some solid advice, rather than advice along the lines of 'we think', so that we could help the beneficiary and executors and guide them in the right direction.

They do not have the money to see a solicitor and what little money there was in the estate would go to evicting the tenant, if necessary. It might not be necessary if the tenant leaves at the end of the tenancy.

Just a small point, but I don't entirely agree with Sisterpita about "the executors shouldn’t/can’t transfer the property until they have vacant possession".

There is nothing to stop a property being transferred with a sitting tenant. Landlord to landlord sales are really not unusual at all.

However, in your particular circumstances, I would agree that it would be best if the property was transferred without the sitting tenant.

My perspective is executors should do what is best for the beneficiaries and transferring to someone in receipt of benefits a property with a sitting tenant is not what is best in this situation.

You can give notice (s21) before probate is granted - we did, as under the terms of the Will the property needs to be sold. Notice was given in June, probate not granted until late July. Solicitor advised this was fine.

Tenants are still in the property, refusing to leave as they want the council to house them, we have a possession order, but first eviction failed as the bailiff delivered the notice to the wrong house! Then new notice given, but no evictions for a 4 week period over Xmas / new year. TBH that was ok as they’re paying the winter energy bills and the house isn’t vacant.

House is sold, should hopefully all go through with vacant possession in February. It was sold before, but when they refused to leave, the buyers understandably pulled out.

We didn’t want to be landlords - it was at the time the best return to pay for care home fees, before interest rates rose.