How does the personal representative (executor) deal with the income tax and capital gains tax affairs of the deceased?
This page deals with the tax affairs of the deceased up to date of death. It is important for the personal representative to ensure that any tax bills relating to the deceased are properly paid and any relevant tax refunds are claimed, before the estate is distributed to beneficiaries.
How do I find out if there are any outstanding issues with the deceased’s tax affairs?
The first thing to understand is that there may be more than one tax year that needs to be dealt with. For example, if someone dies on 30 April 2020, it is unlikely that their tax affairs for the tax year 2019/20 (that ended on 5 April 2020) would have been finalised, while there is also the short period from 6 to 30 April 2020 in the tax year 2020/21 to be considered.
The personal representative should contact HMRC’s bereavement service and ask which tax years need to be finalised and to find out if HMRC believe any information is outstanding.
If the deceased was employed, retired or on welfare benefits in the tax year that they died, HMRC should be able to confirm taxable figures for those sources to the personal representative.
Where can I get information on the sources of income and gains that the deceased had?
HMRC will be able to give you some information (see above), but when you go through the deceased’s paperwork you may well find bank statements, payslips, advice letters about pensions or state benefits, dividend vouchers, stockbrokers statements or interest certificates from banks and so on. Identifying all sources of income is key to being able to finalise the individual’s income tax position up to date of death.
The sources of this income (for example, the bank balance giving rise to the interest or the share portfolio giving rise to dividend income) will also give you information on the overall value of the estate.
Increasingly, though, many details will only be available electronically, and the executor may have to hope that passwords are available (or are not needed) to access the required information. Once a source has been identified, the executor should be able to obtain the information needed to value the underlying capital value for the estate and to take possession of the asset so that it may be distributed to the beneficiaries in due course.
If you have used the Death Notification Service, they may be able to tell you the balances on various accounts and any interest credited to the accounts.
Where you have evidence that the deceased had sold an asset, you may also need to consider capital gains tax.
What income is taxable when it is shared with someone else?
You can read about this on our page What happens to property owned jointly by the deceased and someone else?
Do self assessment tax returns need to be prepared for the deceased?
Not always. If HMRC have issued tax returns then they do need to be completed. But, otherwise, you can check guidance on GOV.UK to see whether tax returns need to be completed. It is the personal representative’s duty to make sure that all relevant income and gains have been reported to HMRC.
Who signs the tax returns?
If tax returns are needed, they need to be signed by the personal representative.
If no tax return is needed, how is the deceased’s tax position finalised?
HMRC will send a letter to the personal representative or – if not known – the last known address of the deceased. The letter should explain the process of reconciling the tax affairs of the deceased up to the date of death and that a P800 tax calculation (or Simple Assessment) will be sent, once HMRC have received the final income and tax information from the pension providers, employers, Department for Work and Pensions (DWP), etc.
Be aware that the deceased may have more than one tax year to be reconciled, especially if they had been ill and had neglected their tax affairs for some time.
A full personal allowance is available for the tax year of the death to set against income arising before the date of death. If the deceased had earnings or pensions that were taxed under Pay As You Earn (PAYE), it is likely that they will have paid too much tax in the tax year of their death. This is because under PAYE, you are only given part of your tax-free personal allowance each month as the system assumes that you will be paying tax evenly across the entire year. When HMRC issue the P800 tax calculation (or Simple Assessment), it will show any refund due. More rarely, there is an underpayment that will need to be paid out of the deceased’s estate.
The personal representative must check the P800 tax calculation (or Simple Assessment) against the deceased’s records. If they cannot agree with it, they should contact HMRC as soon as possible. You can read more about checking forms P800 in our Employment section.
Otherwise, HMRC should give information about when and how the repayment is to be made, or how payment of any amount owing to them is to be made.
Who pays any tax that is due?
Tax up to date of death should be paid out of the assets of the estate by the personal representative. A bank may be prepared to make payment direct to HMRC for this purpose; if there are no funds available, for example because probate has not been granted, the personal representative may need to arrange a loan to pay the tax due.
Who receives any tax refund that is due?
The refund will be payable to the estate.
What are the time limits for finalising the tax affairs of the deceased?
Any tax returns that have been demanded by HMRC should be filed by 31 January following the end of the relevant tax year. So:
- a tax return for the tax year 2019/20 is due to be filed electronically by 31 January 2021
- a tax return for the period from 6 April 2020 to the date of death in 2020/21 is due to be filed electronically by 31 January 2022.
The personal representative can file any outstanding tax returns for the deceased up to date of death once HMRC have made sure they have been properly appointed. The easiest way to do this is probably online but the various options are discussed on GOV.UK.
Where a tax return is to be filed on paper, different deadlines apply.
It makes sense to try and finalise the tax position of the deceased as soon as possible. You can ask HMRC to confirm that there are no further outstanding issues.
Where can I get help and further information?
See our separate page Getting help with bereavement and inheritance tax.