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When someone dies, the tax obligations do not stop. Personal representatives — whether executors named in a will or administrators appointed by the court — take on legal responsibility for the deceased’s tax affairs from the date of death onwards. This includes dealing with any outstanding tax returns, calculating and paying inheritance tax, reporting income earned by the estate during the administration period, and handling capital gains where estate assets are sold before being distributed. It is an area where errors are common and the consequences can be costly, both for the estate and for beneficiaries. Our tax advisors at Tax Accountant regularly support personal representatives and their solicitors through the full administration period, ensuring the tax position is handled correctly from start to finish.
The Period Up to the Date of Death
The administration period begins the day after death. Everything up to that point — all income and capital gains — remains taxable on the deceased as an individual. HMRC will often request a tax return covering the period from the start of the tax year to the date of death, to account for any untaxed income and gains arising during the deceased’s lifetime.
It falls to the personal representatives to prepare and submit that return, along with any outstanding returns from earlier tax years. Any tax liabilities outstanding at the date of death become liabilities of the estate. In the tax year of death, the deceased is entitled to their full personal allowance and their full annual CGT exemption. The transferable marriage allowance and the £1,000 flat rate property and trading allowances are also available in full for that final year.
One point that is easily missed in practice: where the deceased had previously made a valid marriage allowance election to transfer 10% of their personal allowance to their spouse, HMRC sometimes removes this from the tax calculation in the year of death. This is incorrect. A marriage allowance election remains valid until the end of the tax year in which the person dies, and if the amendment reduces the tax credit available to the surviving spouse, it should be challenged. Our team handles exactly this kind of issue as part of our personal tax services.
Simple Estates vs Complex Estates
How income and gains during the administration period are reported to HMRC depends on whether the estate is classified as simple or complex. An estate is treated as simple where the estate was worth less than £2.5 million at the date of death, the total income tax and CGT payable during the administration period is less than £10,000, and the estate did not dispose of assets worth more than £500,000 in any one year of the administration period.
For simple estates, income and CGT can be reported informally to HMRC once the administration period ends, by writing to HMRC who will then issue a payment reference. There is no need to register for self-assessment or file a formal trust and estate return.
For complex estates, the personal representatives must register the estate for self-assessment and submit a trust and estate tax return for each tax year of the administration period. Returns must be submitted and tax paid by 31 January following the end of the relevant tax year. HMRC’s guidance on reporting income and gains from a deceased person’s estate sets out the process in full.
From tax years starting on or after 6 April 2024, if an estate has income of less than £500 in a tax year, it is treated as having no tax liability and no reporting obligation for that year. This de minimis threshold applies to each tax year individually — it does not accumulate or carry forward. If estate income exceeds £500 in any year, the simple or complex estate rules apply as normal.
How Estate Income Is Taxed
Personal representatives cannot claim the personal allowance, the savings interest allowance or the starting rate band for interest income against the estate’s taxable income. All income received by the estate, unless exempt, is taxed at the basic rate. For 2025/26, that means non-savings income and interest are taxed at 20%, and dividends at 8.75%.
If the estate holds individual savings accounts, any ISA interest remains exempt from income tax until the earliest of three years after the date of death, the ISA being closed, or the administration period ending. This is a useful exemption that is worth factoring into the administration timeline where significant ISA holdings are involved.
Administration costs such as legal fees are not deductible from estate income for tax purposes. However, if the personal representatives have taken out a loan to pay inheritance tax, interest on that loan is tax-deductible for the first twelve months, and those interest payments are deducted from non-savings income in priority to other income categories.
Capital Gains Tax During Administration
On death, personal representatives acquire the estate assets at their market value as at the date of death — the base cost is uplifted to the probate value. This means any gain that accrued during the deceased’s lifetime is effectively wiped out for CGT purposes. If the personal representatives subsequently sell estate assets, any gain is calculated by reference to that uplifted probate value, not the original acquisition cost.
Distributions of assets from the estate to beneficiaries are not treated as disposals, so no CGT arises on those transfers. CGT only becomes relevant where the personal representatives actually sell an asset before distribution.
Personal representatives can use the full annual CGT exemption for the remainder of the tax year in which the death occurred, plus a further two tax years if the administration period runs that long. After those two years, no annual exemption is available to the personal representatives. Where a gain arises on a disposal — whether the asset is residential or non-residential property — the gain is taxed at the higher CGT rate of 24%.
Where a taxable gain arises on the disposal of a residential property, the personal representatives are also required to complete and submit a CGT return to HMRC within 60 days of completion of the sale. Missing this deadline can result in penalties. Our team handles this as part of our personal capital gains tax service, and we can manage the 60-day reporting obligation alongside the broader estate administration work.
How Income Is Taxed on Beneficiaries
Income received by the personal representatives during the administration period is ultimately taxable on the beneficiaries, not on the estate in isolation. The way this works in practice depends on whether a beneficiary is entitled to a specific legacy or is a residuary beneficiary.
Where a beneficiary has been left a specific legacy of an income-generating asset — such as a rental property, shares paying dividends or an interest-bearing sum — the income is taxable on them in the year it is received by the personal representatives, even if the beneficiary does not receive it directly until later. Income distributions to specific legatees are treated as having been made net of basic rate tax, which is available as a tax credit.
Residuary beneficiaries — those who inherit whatever remains after specific legacies, costs and tax liabilities have been settled — are taxed only on amounts actually distributed to them while the estate is in administration. In the final tax year of the administration period, residuary beneficiaries are taxed on any remaining undistributed income that has accumulated across the whole period.
To allow beneficiaries to calculate their own tax position, the personal representatives must provide each beneficiary with Form R185 (Estate Income), which details their share of the estate income and the tax already suffered. HMRC’s guidance on income from a deceased person’s estate explains how beneficiaries should use this information. Beneficiaries who are higher or additional rate taxpayers will have a further liability to settle. Those whose marginal rate is lower than basic rate can reclaim the difference from HMRC.
Inheritance Tax and Its Interaction With Income Tax
Inheritance tax and income tax during administration are separate charges and are calculated independently. The inheritance tax liability is based on the value of the estate at the date of death, and this must usually be paid before a grant of probate is issued. However, the two interact in one important way: if the personal representatives take out a loan specifically to fund the inheritance tax payment, the interest on that loan is deductible from the estate’s income for tax purposes during the first twelve months, as noted above.
HMRC’s guidance on how to value an estate for inheritance tax is a useful starting point for personal representatives who are beginning the process. Our team can support with the tax compliance aspects of the inheritance tax return and with any income tax or CGT obligations that arise alongside it through our inheritance tax service.
How Our Tax Advisors Can Help
Estate administration involves multiple overlapping tax obligations across different time periods, and the personal representatives are personally responsible for getting them right. Mistakes — whether an underpaid income tax liability, a missed 60-day CGT return, or an incorrectly filed trust and estate return — can result in penalties, interest and disputes that add cost and delay to an already difficult process.
Our tax advisors work with personal representatives, solicitors and families to manage the full tax side of estate administration. We prepare outstanding tax returns up to the date of death, advise on simple versus complex estate classification, handle trust and estate returns during the administration period, manage 60-day CGT reporting where property is sold, and provide Form R185 details to beneficiaries at the end of the process. We also pick up on issues like the marriage allowance point described above that are easily missed without specialist review.
If you are acting as a personal representative and want to make sure the tax obligations are handled correctly, get in touch with our team through our personal tax services and we will take you through what needs to be done and when.