Waiting to inherit - income tax on rental income and interest

[afterdavid]

My father died 7 years ago, leaving his house to me and my brother in his will. He named my brother as executor.
We decided to let out the house and have been getting steady rental income for 5 or 6 years now.
For various reasons, my brother took several years to apply for probate. Probate was granted nearly 1 year ago.
We have recently listed the house for sale and it is currently sold, subject to contract.

My brother lives in the USA and so I have done certain things to assist him as I'm UK based. My brother put all the accounts (insurance, letting agents, etc) in the appropriate name 'Estate of / Executor of...'
He wanted rental income to be separate the rest of the estate finances. He only had the 1 UK bank account he could use for the estate so I set up for the rental income to be paid into one of my bank accounts. The bank account is in my name. I do not draw from the account. It did not occur to me that I might need the account name to be 'Estate of'...

After several years of rental income amassing, and no movement on applying for probate, I agreed with my brother that I'd shift the rental income into a high interest savings account.
I've just logged in and see the account is generating around £140 of interest each month. I've belatedly realised that this may mean I am personally liable to pay tax on the interest on the rental income as it has exceeded the £1K personal allowance for interest on savings.
As the house has not sold yet, the estate is yet to be distributed. While we wait for the house to sell, I'm reluctant to move the money away from somewhere it is earning good interest. However, I'm confused about where the situation leaves me with regards to income tax.

I am employed full time. I am not taking any of the rental income or interest for my own use - we're leaving it untouched so there is a clear audit trail on rental income when it comes to doing the final estate accounts.

I'd like to understand if I am personally liable for the income tax on the interest, regardless of whether I file a self-assessment tax return now, or wait until after the house has been sold and I've inherited? I'm anxious that I don't wait too long to file a tax return (don't want to risk fines / penalties) but at the same time, I do not want to pay for something personally that I won't benefit from personally. The rental income is not all mine, nor the interest it has earned; the income and interest will be split between me and my brother. I was hoping that if any income tax is due on the interest then it could be paid by the estate, not myself. Similarly, when we declare the rental income, I was hoping this could be as 'the estate of...', not as myself. I don't want the rental income and interest to be added in its entirety to my personal tax liability or it'll push me into a higher tax band when combined with my salary. That'd be fine if I was sole beneficiary but I'm not - so it'll falsely inflate my income, if that makes sense?

I cannot find information online that reflects this scenario so I cannot see how I alert HMRC of the situation. I am not trying to evade anything; I just want to avoid paying twice, or paying extra, just because the bank account used was in my name.

I would be deeply grateful for any information that would help me. Thank you.

[Pezza54]

Hi
Welcome to LB

Please read the article "What Happens to Rental Income During Probate?" at www.premiersolicitors.co.uk
The article does state beneficiaries should not have access to estate funds before or during probate
Your brother executor should not have let you open a separate account in your name to receive estate income

As executor your brother has been responsible for carrying out landlord's legal duties, annual gas safety checks etc

There may be CGT to pay to HMRC in addition to income tax on estate income which includes rent and interest

I am by no means a tax expert. The article recommends the reader to obtain tax advice before settling with beneficiaries

If I was in your position and HMRC had not queried rental income, and had not sent a personal tax calculation showing untaxed interest received on bank accounts, I would close my personal account and transfer all of the funds to the estate account set up to receive money from the property sale.

When all taxes are paid to HMRC, the executor should receive certificates to show that the taxes have been paid by the estate. You should obtain copies of these certificates in case you receive questions from HMRC about historical personal income. You should also download and retain annual bank account statements showing rental income and interest

[Pezza54]

Estates do not receive any personal tax allowance and pay 20% tax on income such as rent and account interest

It is worth checking with a tax accountant before transferring the money. It is possible HMRC will accept that as you are a main beneficiary and the other executor beneficiary agreed, to rent being paid to your personal account. If HMRC agrees this may turn out to be a cost effective way to pay less tax