Tax on income and gains after death
This page explains how the personal representative (the executor or administrator) deals with and reports any income and/or capital gains that arise after the deceased’s death but before the estate is distributed to beneficiaries. This period is called the administration period. There are special rules, which we do not cover here, that may apply if the personal representative is not resident in the UK.
Content on this page:
Length of administration period
The length of the administration period depends on the assets and liabilities in the estate and how quickly they can be identified and valued. Once all pre-death debts have been paid, funeral costs accounted for and any inheritance tax liability settled, HMRC may regard the administration period to be over. The position may, however, be more complicated if assets are sold before distribution to the beneficiaries – HMRC’s manuals provide more information.
Once all these matters are settled, the personal representative can transfer assets to the beneficiaries – but only in accordance with the will or according to the laws of intestacy, where no will was made. Also, in Scotland there are prior and legal rights to be considered. You can read more about this on GOV.UK.
Reporting to HMRC
Responsibility for dealing with the tax affairs of the estate lies with the personal representative.
The personal representative may have to complete a tax return for the period after the date of death if the tax position of the estate is complex or if the tax liability is significant. This will not be a personal tax return, but a trust and estate tax return.
An estate which is not regarded as 'complex' can be dealt with informally, by simply writing to HMRC at the end of the administration period. Most estates will use the informal procedures.
Where the only source of income is savings interest of less than £500, HMRC have agreed that no reporting of estate income is necessary, informally or otherwise.
You can find out more about trust and estate tax returns and informal procedures on GOV.UK.
ISAs after a person dies
When a person dies, their ISA will become a continuing account of the deceased investor or a continuing ISA. This means it will continue to benefit from tax advantages (that is, the income will be tax free), until the earliest of:
- the completion of the administration of the ISA holder’s estate
- the closure of the ISA, or
- three years after the ISA holder’s death.
You can read more about some special rules applying to a deceased’s ISAs where they pass to a spouse or civil partner on our page Death of a spouse or civil partner.
If capital gains from disposals of estate assets exceed the capital gains tax annual exempt amount (£6,000 for 2023/24), there will be capital gains tax to pay and it will need to be paid either by completing an estate tax return, or via informal arrangements if the estate is a simple estate, as discussed above. Even if there is no capital gains tax to pay, HMRC may require a tax return or disclosure of gains via informal arrangements, if the proceeds or total estate value were more than certain amounts. Again, refer to the guidance on GOV.UK about informal reporting.
Where the estate needs to use capital losses to stay within the capital gains tax exemption, the personal representative will have to report all the gains and losses, despite the fact no capital gains tax may be payable.
If, as a personal representative, you dispose of UK residential property in the estate, you may need to report capital gains and pay any tax within 60 days of completing the transaction. Our page capital gains tax reporting for individuals explains this further in the context of individuals, and GOV.UK explains how the system works for personal representatives.
Income tax on estate income
During the period of administration, income tax applies to income that the estate receives. Such income may arise, for example, from investments held by the deceased at the date of death.
Personal allowances are not available to the personal representative after the date of death to set against post-death income. Note also that the personal savings allowance and dividend allowance are not available to the personal representative after the date of death.
Since the estate is not entitled to a personal allowance, all income is taxable (unless the income is specifically exempt from income tax, for example winnings from premium bonds. See also the information on ISAs above).
UK banks and building societies do not deduct tax at source from interest on savings accounts. If the estate receives bank or building society interest, the estate will have to pay tax on the interest received, subject to the exception discussed above that if the only income received by the estate is savings income of £500 or less then no reporting is necessary.
If the estate includes rental property and receives rental income, the estate will have to pay income tax on the rental profits (there is more information on working out rental profits in our page on Property income). If the estate includes company shares and receives dividend income, the estate will have to pay income tax on the dividend income.
On income arising after the date of death, the rates of tax are:
- Savings income: 20%
- Dividends: 7.5% on dividends received up until 5 April 2022, 8.75% on dividends received from 6 April 2022.
- Profit from renting property: 20%
No higher tax rates are applied, no matter how much income is received. However, if and when income is passed to any beneficiary, it may be subject to tax at higher rates – or the beneficiary may be able to claim repayment of some of the tax paid. For more information see the Income from the estate paid to beneficiaries section, later on this page.
Capital gains tax on estate gains
During the period of administration, capital gains tax (CGT) applies to gains on any assets disposed of by the estate except for assets transferred to the beneficiaries. You can read above on when any gains need to be reported to HMRC. Personal representatives might need to dispose of assets to release money to pay debts, for example. Gains arising on the disposal of any assets are calculated by reference to the sales proceeds less the value at death.
Personal representatives get a full annual exempt amount (£6,000 for 2023/24) for the period from the date of death to the following 5 April (no matter how short this period is).
To the extent the administration period continues into the next two tax years, the personal representatives will also receive the full amount of the annual exemption in each of the following two tax years. If the administration period lasts longer than this, no further annual exempt amount is available. The annual exemption is only available to set against gains realised in a particular tax year, any unused annual exemption does not roll over to the following tax year.
If the estate disposes of a chargeable asset and there is a gain, the personal representative will be responsible for paying the CGT out of the estate. They may have to complete a trust and estate tax return for the estate if there is a significant amount of CGT due or if the assets sold are of significant value. You can find out more about trust and estate tax returns on GOV.UK. This includes information about when a tax return is needed as opposed to informal reporting of income and/or gains.
The rate of tax on chargeable capital gains on disposals by the estate of residential property, including any home of the deceased, is 28%. The personal representatives should consider whether there is any private residence relief available on the sale of the deceased’s home. This may be the case where a beneficiary of the estate has occupied the property as their main home during the period of administration. You can read more about private residence relief on our page Selling your home. As noted above, sales of UK residential property may need to be reported to HMRC within 60 days of completion with any tax due within the same period.
The rate of tax on chargeable capital gains on disposals by the estate of chargeable assets other than residential property is 20%.
Assets transferred to beneficiaries
When assets are transferred, they are passed over at the value at the date of death – unless it is cash (or money in a bank account) where the actual sum is the value transferred.
The personal representatives are not making a disposal of the assets for capital gains tax purposes. That is, the transfer of assets to beneficiaries does not trigger a charge to capital gains tax – the personal representative is merely distributing the estate to its rightful owners in accordance with the will or intestacy.
For example, if a beneficiary receives £10,000 from an estate plus a small number of shares valued at £5,500 when they are transferred to them, the beneficiary needs to know the value of the shares at date of death. These will have been valued by the personal representative. It is the value at the date of death that will become the ‘cost’ for the beneficiary when they dispose of them, not the value of £5,500 at the date of transfer to them.
Estate income paid to beneficiaries
The personal representative must provide the beneficiary with a certificate, a form R185, that shows the income paid to the beneficiary during a specific tax year and the income tax already paid by the personal representative on that income.
You can read about the tax position of the beneficiary in relation to this income on our page Paying tax on trust and estate income.
You can download the paper trust and estate tax return from GOV.UK. You cannot use HMRC’s free online services tax return software to complete and submit an estate tax return online, but software is available to purchase. If you appoint a professional agent to help you, they are likely to have software that enables the forms to be filed online.
You can use the bereavement tool on the HMRC website to find out whether you have to complete a trust and estate tax return for the period of administration.
There is more information on the records the personal representative will need to keep for the trust and estate tax return on GOV.UK.
There is more information about how to pay any income tax and capital gains tax liability on GOV.UK.
If the deceased held NS&I investments at the date of death, you may find this NS&I booklet Guidance after a bereavement useful.
For further sources of information and support, see our separate page Tax help on bereavement, trusts and estates.