What to do about tax when someone dies

This guidance will help you understand the tax liabilities that may arise when someone dies.

It gives basic information about income tax and capital gains tax and briefly mentions inheritance tax. It also explains what you need to do if:

you are a personal representative
you are a beneficiary
you are a trustee.

Key Terms

Key terms

When someone dies, the person responsible for settling his or her affairs and for administering their estate is known as the executor or the administrator. Their responsibilities are the same, and here we use the term personal representative to cover both roles. The principal duties of the personal representative are to gather in the assets of the deceased person, settle their debts and other liabilities (including any taxes payable), and pass any legacies and the balance of the estate across to beneficiaries according to the terms of the deceased’s will. If there is no valid will, they must distribute the estate according to the ‘rules of intestacy’, that is, the rules of inheritance that apply where there is no will. If you are a personal representative you may also wish to look at the section on beneficiaries, as you may be asked by the beneficiaries of the estate for advice and assistance on the subjects covered there.

Beneficiaries are those who benefit from an inheritance from the estate or part of the estate. If you are a beneficiary you may be given a legacy (a specific asset or sum of money) or you may receive a share of the residue of the estate (meaning what is left in the estate after the personal representatives have paid out the debts, expenses, taxes and legacies).

The administration period is the period that runs from the day following the date of a person’s death until the date when the personal representatives are satisfied that they have paid, or hold sufficient funds in the estate to cover, all outstanding liabilities. This means that they have taken all steps necessary to complete the administration of the estate and what is left as the free balance in the estate (the residue) has been identified.

Trustees are responsible for managing assets placed in a trust (if a trust has been created under the terms of the will or the rules of intestacy). A trust is an obligation binding a trustee to deal with property in a particular way for the benefit of another person or class of persons. If you are a trustee you have an obligation to the trust beneficiaries. When the trust commences will depend on how the trust is created, and when the assets are transferred across to the trustees.

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If you are a Personal Representative

How can I be appointed personal representative?

Before you can act as a personal representative, you usually have to apply to your local Probate Registry to be appointed personal representative by 'a grant of probate', or 'letters of administration' ('a grant of representation'). In Scotland, you have to apply to the Sheriff Clerk’s Office to get 'confirmation'. You may have to pay a fee for this and, where inheritance tax is due on an estate, you may have to pay at least some inheritance tax before you get recognition. If, however the estate is simple, for example the surviving spouse or civil partner inherits the majority of the assets which were jointly owned with the deceased, it is possible to deal with the estate without having to apply for a grant of representation or confirmation.

Do I have to get help from a solicitor?

No. You do not have to use a solicitor to administer the estate or pay income tax, capital gains tax or inheritance tax. But if the estate is large or the deceased owned many assets that may take time to sell or realise, you may decide that it is simpler to use a solicitor or accountant to take over the whole administration of the estate.

When should I tell the Tax Office about the death?

You should let us know about the death as soon as you can. This helps to avoid relatives being upset by tax bills or letters addressed to the deceased person.

Which Tax Office should I contact?

If you know which Tax Office dealt with the deceased’s tax affairs then you should contact that office. The address and tax reference may be among his or her papers, for instance on recent tax forms or letters from us.

If you do not know which Tax Office dealt with the deceased’s tax affairs you should

ask his or her former employer or pension payer, if they had one, to provide you with the Tax Office and tax reference details
contact the Tax Office nearest to the place of business, if the deceased was self-employed.

Otherwise, please contact the Income Tax Office nearest to the deceased’s home address. If there is any tax due to the date of death, the Tax Office dealing with the last private address of the deceased should assume responsibility for dealing with the liability. It will help if you can tell us the deceased’s National Insurance number, which you can find on a pension or pay slip.

How do I settle the deceased’s tax affairs up to the date of death?

Income that the deceased received and capital gains he or she made for the period up to the date of death are taxed in the normal way.

So, depending on the circumstances, you may have to pay some additional tax or claim a tax repayment.

Remember, if you

distribute the estate without settling the tax liabilities, you may have to pay the tax out of your own pocket
fail to claim a tax repayment due to the estate, you may have to make good the loss to the estate.

What will the Tax Office want to know?

We may ask you:

whether you intend to seek legal recognition as the executor or administrator of the estate by obtaining a grant of probate, letters of administration or, in Scotland, confirmation
to complete a tax return for the year in which the death occurred, and sometimes for earlier years, and
to pay any tax due to us (we can help you with the tax calculation if you wish).

You may wish to pass these requests on to your solicitor if you have appointed one to act for you.

What will the Tax Office do?

We may send you a Self Assessment tax return, asking you to give details of the deceased’s income and any capital gains for the year ended on 5 April, or up to the date of death. If any tax is due, we will send you a notice of assessment showing how much tax you have to pay, and how it is calculated. You will then be responsible for paying the tax out of the estate funds.

If tax has been overpaid for any year this will be repaid to you and the repayment will be an asset of the estate.

If it appears that there may be a repayment due to the date of death, but we have not received an SA return or a repayment claim for that period, we may ask you to complete a form R27 and to give an undertaking that you will treat the tax repayment properly as part of the estate.

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Dealing with income tax due after the date of death

Personal representatives are chargeable to income tax on income that arises on the assets in the estate during the administration period.

What are the income tax rules?

Any income that arises on the assets in the estate after someone dies belongs to their estate. As personal representative, you may receive income due to the estate from the date of death until you complete the administration of the estate, and you are chargeable to income tax on that income. Most of the income that you receive will have been taxed already, such as bank interest, building society interest and dividends on company shares. As personal representative you will have no further tax to pay on these types of income.

However, income from some sources may not have been taxed when you receive it, for instance:

rents from property
income from abroad
interest from some National Savings Bank accounts or bonds.

If you receive untaxed income which is not exempt, and have tax to pay on that untaxed income, you are bound by law to tell us.

Will I continue to deal with the deceased’s Tax Office?

Yes, in the majority of cases the deceased’s Tax Office will be responsible for dealing with any tax liability of the estate. This includes cases where the deceased’s lifetime tax affairs were dealt with by Public Department (PD) 1 - that office will retain responsibility. But if the deceased did not have a Tax Office at the date of death, the Tax Office that deals with the address of the first-named personal representative will be responsible for dealing with the administration period liability.

But there are exceptions to the above, where the estate might be dealt with by West Yorks Personal Tax Unit (WYPTU), or by the specialist HMRC Trusts office that deals with your area.

What should I do if no Tax Office approaches me about tax liability for the period after death?

If you believe you are liable for tax, you should contact the deceased’s Tax Office.

Can I make a payment to the deceased’s Tax Office?

The tax liability of the majority of estates is straightforward and can be dealt with by the deceased’s Tax Office. Personal representatives may make an informal payment to the office that handled the deceased’s tax affairs of the total liability for the whole period of administering the deceased’s estate, provided that certain conditions are met. You should inform us of any untaxed income and any tax due on that income. (We can help you with the tax calculation if you wish.) We will then send you a payslip for you to return with your payment. For further details see the Trusts, Settlements & Estates Manual (TSEM) at TSEM7410 onwards.

Different procedures apply, however, if a trust has been created under the terms of the deceased person’s will or the rules of intestacy, or if the estate is regarded as “complex”, see details at Trusts, Settlements & Estates Manual (TSEM) 7366 and 7376. If any of these conditions apply, an HMRC Trusts office will take responsibility for dealing with the estate’s taxation.

What will the PD1/WYPTU/ HMRC Trusts office do?

We may send you Self Assessment Trust and Estate tax returns on which to give details of income received and chargeable disposals made by the estate. Self Assessment is the method for calculating and paying tax. There is further information on Self Assessment in our SA series of leaflets.

If you receive a return from us, then as personal representative you are responsible for completing and submitting a return and paying the tax on time. When completing the tax return, you can choose whether to calculate the actual tax due or ask us to do the calculation for you.

What if I have to pay any tax due?

If any tax is due it is important to keep to the time limits as failure to do so will result in automatic interest, surcharges and penalties being charged.

You may need to pay the tax due for any one year in three stages:

a payment on account on 31 January in the tax year;
another payment on account on 31 July after the end of the tax year; and
a final payment on the following 31 January if there is any more tax due.

The first and second payments on account are each equal to half of the total liability for the previous year (net of tax deducted at source and excluding capital gains tax).

What happens when I wind up the estate?

When you want to wind up the estate you can ask us to agree the liability for the final period and pay the tax due early. The estate can then be wound up without having to wait until the normal tax payment dates.

We may ask you to supply information about the people who will benefit from the estate (the beneficiaries), and whether a trust has been set up under the terms of the deceased’s will or under the rules of intestacy.

If you need further information about tax returns, assessments and payments, please contact the Probate and Inheritance Tax Helpline, or the appropriate HMRC Trusts office.

What rate of income tax will I have to pay as personal representative?

Personal representatives are chargeable to income tax at the lower and basic rates only. Savings income, such as bank and building society interest, is taxed at the savings rate, currently 20%. Dividends from UK companies, and similar receipts, carry a tax credit of 10% that meets the liability and cannot be repaid. Other income, such as rents from property, will be taxed at the basic rate, currently 22%. Personal representatives might also have to pay tax at the dividend rate on foreign dividend income. For details of all current rates see the Rates and Allowances pages.

Can I claim personal allowances as personal representative?

No. Once a person has died, his or her personal allowances are no longer available to set against the income you receive as personal representative. However, you may be able to claim certain tax reliefs that are not restricted to individuals, if, as personal representative you:

take over the deceased’s business and make a loss, you may be able to claim loss relief;
pay interest on a loan taken out to pay inheritance tax, the interest may qualify for tax relief.

If you think you may qualify for tax relief we can give you more information.

What must I tell the beneficiaries?

If you make a payment to a beneficiary during the administration of the estate, and the beneficiary asks you in writing for a statement of estate income, you must give them a written statement showing their income from the deceased person’s estate for the year and the tax paid on that income. If you wish, you can use form R185(Estate Income) for this purpose. You can download this form from the HMRC Internet or we can supply blank forms on request.

At the end of the administration period you should supply the beneficiary with a statement showing the full amount of estate income, and the tax paid on that income, from their share of the residue since the administration of the estate started. This should exclude income already treated as income of the beneficiary in previous years.

Transferring assets to a beneficiary and paying a beneficiary’s debts are treated as making a payment to them in the same way as making a cash payment.

Where can I get further information about income tax?

You can find more information about income tax during the period of administration by visiting the HMRC Trusts pages.

If you want specific advice about income tax during the period of administration contact the Probate and IHT helpline.

We are unable to give you any legal advice about how you should administer the estate.

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Dealing with capital gains tax due after the date of death

If the personal representatives sell capital assets from the estate, they are liable to capital gains tax.

What is a chargeable gain?

A chargeable gain is made when an asset is given away, exchanged, sold or disposed of in any other way, and its value has increased since it was first acquired. Capital gains tax (CGT) is not charged on the asset itself but on the increase in its value during the period it has been owned. As personal representative, you are chargeable on all gains arising on assets owned by the estate.

You can find more information on capital gains tax in our guidance “CGT An Introduction (PDF 1.1MB)”. See also Help Sheet HS282 – “Death, Personal Representatives and Legatees”.

Is capital gains tax payable on assets held at the date of death?

Not as such, and a person’s death is not an occasion of charge for capital gains tax purposes. However, if the deceased had made a chargeable gain prior to the death that they had not already declared, you must include the gain in a tax return for the deceased for the period up to the date of death, and pay any CGT that may be due.

What are the capital gains tax (CGT) rules?

When you take control of the deceased’s assets, they are treated as if you had acquired them at their market value at the date of death.

When you transfer an asset to a beneficiary under the will or under the rules of intestacy, you are not treated as disposing of it for CGT purposes. You have no chargeable gain or allowable loss on that disposal. Instead, the beneficiary is treated as if they had acquired the asset on the date of death, at its market value on that date.

Sometimes you may need to sell assets during your period as personal representative, for example, to raise money to pay inheritance tax or to settle cash legacies. If so, you will have to declare any chargeable gains you realise on estate assets, and pay CGT out of estate funds. CGT is chargeable on the personal representative only on gains arising on estate assets during the period of administration.

The rate of CGT on personal representatives is currently 40%.

Can I use capital losses that were outstanding?

If the deceased had allowable losses in the year they died that come to more than the chargeable gains for the tax year in which the death occurred, the excess losses may be set against the gains of the previous three years, beginning with the most recent.

You cannot set unused losses for the period before death against gains made afterwards.

Can I use the annual CGT exemption?

The annual exemption (the gains you can make before you pay CGT) is available to the personal representatives on disposals made from the estate in the period from the date of death to the following 5 April and in the two tax years following the year of death, but not after that. See HMRC Internet for the current exempt amount.

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Inheritance Tax (IHT)

The personal representatives are liable to pay any inheritance tax that is due on the estate.

Will I have to pay inheritance tax?

When you apply for legal recognition to be a personal representative, you may have to fill in an Inheritance Tax Account. The Account asks you to give details of:

the assets owned by the deceased, valued as at the date of death
debts owed by the deceased at the date of death
funeral expenses, and
certain gifts made by the deceased during their lifetime.

HMRC Inheritance Tax uses the Account to work out how much inheritance tax must be paid. As personal representative, you must sign it as a correct and complete record of the estate. Inheritance tax is payable if the value of the estate is above the “nil rate band” or “threshold” announced each year in the Budget. The IHT threshold from 6 April 2007 is £300,000. For more information about inheritance tax see the “Customer Guide to Inheritance Tax”.

Can I get help from the Probate Registry?

If you don’t want to use a solicitor, you can get information about probate from the Probate Service website.

You will need to attend an interview at the Probate Registry, usually within about three weeks of sending the forms, and if there is any inheritance tax to pay, you may need to pay at least some of the tax before you can get a grant of representation. The interviewing officer will give you an estimate of how long it will take for the grant of representation to be prepared and sent to you.

The Probate Registry is not able to give you any legal advice about how you should administer the estate.

When do I have to pay inheritance tax?

You generally have to pay at least some of the inheritance tax before you can get legal recognition. But you do not have to pay tax on some important assets, for example land and houses, until six months after the end of the month in which the death occurred.

Where can I get further information about inheritance tax?

You can get more information about inheritance tax and you can download the inheritance tax forms by visiting the HMRC Inheritance Tax pages of our website.

If you have any specific enquiries about inheritance tax or probate, or want paper copies of the probate or inheritance tax forms contact the Probate and IHT Helpline.

Please note that we cannot give you legal advice about how you should administer the estate.

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If you are a Beneficiary

If you stand to benefit from an estate, the personal representative, or the solicitor acting, will tell you about your entitlement. If they cannot find the beneficiaries, they will place an advertisement in the press asking for information about them.

I am a beneficiary. How will this affect my income tax liability?

This depends on how you benefit from the estate. You may be entitled to:

a legacy
the whole or part of the residue of the estate
the income from the whole or part of the residue of the estate (but not the capital)
claim your legal rights in a Scottish estate.

If you benefit from a foreign estate, special tax rules apply, which are not explained here. You should let us know what you receive from the foreign estate as soon as possible.

What is the difference between a “legacy” and the “residue” of an estate?

A legacy is usually a sum of money or a specific asset that is left to you under the terms of the deceased person’s will.

The residue of an estate is what is left after the payment of debts, expenses, taxes and legacies (and in a Scottish estate, after payment of legal rights and prior rights).

I am to receive a legacy. How will this affect my income tax liability?

Usually you will not have any income tax liability when you receive a legacy, unless it:

consists of an asset that produces income, for instance a bank account, shares or a rented property. The income that the asset produces is your income, just as if, for example, you bought the shares out of your own money.
is paid late and the personal representative pays you interest on it. The interest is part of your income for tax purposes for the year in which it is paid. It will generally be paid to you without tax deducted, so you must report it to us even if you are not sent a tax return.

I am entitled to the residue (or part of the residue). How will this affect my income tax liability?

For each tax year during which the estate is being administered, the personal representatives have to calculate the residuary income of the estate. They do this by deducting certain expenses from the income received by the estate. They may pay out the share(s) of that income to the residuary beneficiary(ies) during the administration period, or they may wait until the administration is completed before doing so. If you get a payment from the personal representatives during the administration of the estate, it is treated as part of your income for the tax year in which you receive it. For any given year, the estate income which you must put on your personal tax return will be the lesser of:

the amount actually paid to you in that year, or
your residuary income, calculated as:
- the total of your residuary income from the date of death until the end of the tax year in which the payment is made, less
- any amounts which have already been treated as your income for earlier years.

When the personal representatives complete the administration of the estate they will pay out the balance of income due to the residuary beneficiaries. If no payments have already been made to you, all the income is your income for the final year in which the administration of the estate ended.

You can find more information about the beneficiary’s liability during the administration period at the Trusts, Settlements & Estates Manual (TSEM) at TSEM 7608 onwards.

I am entitled to the income but not the capital of an estate. How will this affect my income tax liability?

If you get a payment from the personal representatives during the period of the administration of the estate, it is treated as part of your income for the tax year in which it is paid to you.

When the personal representatives wind up the estate any income that is payable to you is treated as your income, if it has not already been treated as your income for an earlier year.

I am entitled to benefit from an estate only if the personal representatives exercise “a discretion” in my favour. How will this affect my income tax liability?

The personal representatives may be able to exercise a discretionary power in choosing who can receive payments from the estate.

If you are entitled to receive payments from the estate only because the personal representatives exercise a discretion in your favour, any income that is paid to you is treated as part of your income for the tax year in which it is paid to you.

What tax liability will I have if I claim my legal rights in a Scottish estate?

The part of the estate you receive in respect of your legal rights will normally be paid to you with interest. You will receive the interest without deduction of tax (unless you usually live outside the United Kingdom), and the interest is your income for the year in which it is paid to you. You must report it to us even if you are not sent a tax return.

Will I have to pay tax on income I receive from the estate?

Income from the estate that the personal representatives pay to you is treated as having borne income tax already. But you may have to pay more tax if:

the income, when added to your other sources of income, makes you liable to income tax at the higher rate
you receive an age-related allowance, because the level of your income affects that allowance.

In either case, you must let us know. If you get a tax return you should report the income there. If you don’t, you need to tell us by 5 October after the end of the tax year in which you first receive the income, or as soon after that as you know about it.

If you are not liable to tax, or are liable at the starting or lower rates only, you may be entitled to a repayment of some or all of the tax on this income. Whether or not you are entitled to a tax repayment, you should always show this income on your tax return if we ask you to complete one. If you think you can reclaim some tax, but you don’t receive a tax return, you should contact us as soon as possible.

How will I know how much income to enter on my tax return?

Whenever you receive a payment from the personal representatives you should ask them for a written statement of income from the estate. They may use form R185(Estate Income) for this purpose. This will show you:

how much income to enter on your tax return for the year of payment, and
how much tax is treated as having been paid on the income.

Some of the income received by the personal representatives was treated as part of the estate for inheritance tax purposes. Is there any tax relief for this?

Yes, but only if you are liable to tax at the higher rate. For further information about the special tax relief that is available contact the Probate and IHT helpline.

As a beneficiary, will I be liable to capital gains tax?

The transfer of an asset to you under the terms of a will or the rules of intestacy is not a chargeable occasion for CGT. You are treated as acquiring the asset on the date of death at its open market value on that date. If you later dispose of that asset, this will be a chargeable occasion for CGT. In these circumstances the date of death value will be used as the acquisition price.

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If you are a Trustee

When does a trust commence?

This will depend on individual circumstances. It is possible that a will may direct that a particular legacy, instead of going directly to an individual, be held on trust. In this case the trust will be treated as having commenced as from the date of death.

Once the administration of an estate is complete and the personal representative’s administrative functions are over, what is left of the deceased’s property after all debts, taxes and legacies have been paid may not necessarily pass directly to the ultimate beneficiaries. Instead, the balance of the estate may pass into a trust or settlement. In these circumstances, it is up to the personal representative to determine whether or not they need to wait until the administration of the estate is complete before they transfer some of the assets comprised in the residue over to the trustees. The trust will commence when assets are transferred to the trustees or when the administration has been completed, whichever event happens first.

How is a trust created?

A trust may be created by either:

the terms of the deceased’s will, or
the rules of intestacy.

For example:

the deceased’s will might provide for assets to be held on trust so that the income generated by the assets is paid to a beneficiary during his or her life; and when that person (known as the “life tenant” or, in Scotland, the “liferenter”) dies, the property then passes to other beneficiaries;
if property in England and Wales is left to someone under the age of 18 it will usually have to be held on trust until the beneficiary becomes 18, even if the will does not provide for the property to be held on trust.

I am a trustee. What are my responsibilities?

The responsibilities of trustees are different from those of personal representatives, although often the same person(s) will take on both roles. A number of trustees can be appointed with collective responsibility for managing the trust.

Trustees are required to manage the property held on trust and any income generated by that property, according to the terms of the will or the rules of intestacy and general trust law. Your responsibilities continue until you retire as trustee or the trust ends.

You can find more information on trusts and the responsibilities of trustees in our guidance “Trusts: an introduction”.

Do I need to inform the Tax Office about the existence of the trust?

The personal representatives should already have told us that a trust is to be set up under the terms of the deceased’s will or the rules of intestacy. We will then ask you for further information about the trust.

The Tax Office that you will deal with as a trustee will normally be the same Trusts office that dealt with the estate during the period of administration. If you have not heard from them, you must contact them as soon as possible.

I am a trustee. How will this affect my income tax liability?

In your capacity as trustee, you are liable to tax on income generated by the trust property. You must inform us if this is the case. Income arising to you in your role as trustee is taxed separately from income arising to you in your personal capacity, such as income from your employment, or from your own bank or building society accounts. You can find more information on how trusts are taxed in our guidance “Trusts: an introduction”.

As a trustee, will I be liable to capital gains tax?

When a personal representative transfers an asset to a beneficiary, there is no CGT liability on the transfer. The same applies when the personal representative transfers an asset to trustees.

If you are the trustee of a trust created under the terms of a person’s will or the rules of intestacy, you are treated for CGT purposes as acquiring the asset on the date of death, at its market value on that date. This applies where the transfer is a formal transfer to a different person, or where, on completion of the administration, the same person continues to hold the property as a trustee or on behalf of the trustees.

You may be liable to CGT if trust assets are disposed of, or if beneficiaries become entitled to them later. If you need more information about this, you should consult the guidance notes and Help Sheets that accompany the Trust and Estate tax return.

As a trustee, will I be liable to inheritance tax?

Depending on the terms of the trust, inheritance tax may arise on the value of the assets in a trust every ten years or when they are distributed. The liability will only arise if the value of the assets on which the charge arises exceeds the inheritance tax threshold which from 6 April 2007 is £300,000. You can find out more about inheritance tax by visiting the HMRC Inheritance Tax pages of our website.

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