Legal News | 24.09.26
Understanding Income Tax During Estate Administration
When someone dies, dealing with their estate involves much more than obtaining a Grant of Probate and distributing their assets.
Personal Representatives also need to consider the estate’s tax position throughout the administration period. While Inheritance Tax often receives the most attention, income tax can be just as important. Getting it right can help avoid unexpected tax bills, interest and penalties later on.
What happens to Income Tax when someone dies?
The deceased’s income tax affairs need to be brought up to date to the date of death and, where appropriate, a final Self Assessment Tax Return may be required.
After death, the estate itself may continue to receive income. This could include:
- interest on bank or building society accounts;
- dividends from shares and investments; and
- rental income from property.
Personal Representatives are responsible for dealing with the income tax arising on this income during the administration period. They do not receive a personal allowance, and for the 2026/27 tax year, estate income is taxed at:
- Savings and investment income: 20%
- Dividend income: 10.75%
- Other income, including rents: 20%
How to report the Income Tax
From 6 April 2024, if an estate receives £500 or less of income in a tax year, there is generally no income tax to pay or report. If the income exceeds £500, the whole amount becomes potentially taxable.
For straightforward estates, any tax due can usually be reported to HMRC using informal arrangements. This is available where the estate is worth less than £2.5 million, the total income tax and capital gains tax due is less than £10,000, and no more than £500,000 of assets are sold in any one tax year.
If these limits are exceeded, the estate will usually need to be formally registered with HMRC, and annual Trust and Estate Tax Returns submitted.
If you are an executor or administrator and would like advice about administering an estate, including the Income Tax implications, please get in touch with our Private Client Team.
