Income tax and capital gains up to the date of death
This page deals with the tax affairs of the deceased up to date of death. Before the estate is distributed to beneficiaries, the personal representative should ensure that any tax bills relating to the deceased are properly paid and any relevant tax refunds are claimed.
Content on this page:
Outstanding tax issues
There may be more than one tax year that needs to be dealt with. For example, if someone dies on 30 April 2023, it is unlikely that their tax affairs for the tax year 2022/23 (that ended on 5 April 2023) would have been finalised, while there is also the short period from 6 to 30 April 2023 in the tax year 2023/24 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.
Our page Bereavement: tax issues on death gives information about things to consider if the deceased was running a business when they died.
HMRC will be able to give you some information on income and gains, but when you go through the deceased’s personal information you may well find bank statements, payslips, advice notices 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 to help establish the overall value of the estate.
Increasingly, many details will only be available electronically, and the executor may have to hope that passwords are available 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.
If the deceased had joint income (for example from a jointly owned rental property or joint bank account), you can read about how this income is taxed on our page Joint property on death.
Where you have evidence that the deceased had sold an asset, you may also need to consider capital gains tax.
Self assessment tax returns
It is not always necessary to complete a self assessment tax return for the deceased. You can check guidance on GOV.UK to see whether tax returns need to be completed. If HMRC have issued tax returns then they do need to be completed unless you contact HMRC and they agree to cancel them. It is the personal representative’s duty to make sure that all relevant income and gains have been reported to HMRC.
If tax returns are needed, they need to be signed by the personal representative.
If no tax return is needed
If no tax return is required, it is still necessary for the deceased’s tax affairs up to the date of death to be finalised. To do this, 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 a 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. The personal representative should advise HMRC of any savings or property income or capital gains.
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 of tax 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 simple assessment and checking forms P800 in our page Simple assessment.
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.
Paying tax and tax refunds
Tax up to the 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.
If there is a refund due to the estate, the refund will be payable to the estate.
Any tax returns that have been demanded by HMRC should normally be filed by 31 January following the end of the relevant tax year.
However, we understand that where there are outstanding tax returns for the deceased, HMRC advises executors to contact them. HMRC should then cancel any outstanding tax returns that were issued to the deceased and re-issue them to the personal representative, together with a tax return to the date of death.
HMRC will not accept electronic tax returns from personal representatives for deceased taxpayers. Paper tax returns therefore have to be filed.
HMRC will usually give a deadline of 3 months and 7 days for the executors to submit any re-issued tax returns. HMRC’s guidance (see HMRC’s self assessment manual SAM90010) also indicates that if an executor has difficulty meeting this deadline, they may agree an alternative reasonable filing date.
HMRC’s guidance (see SAM90010) also confirms that any outstanding late-filing penalties issued to the deceased should be cancelled.
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.
To get professional help see Tax help on bereavement, trusts and estates