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Wednesday, 3 October 2023

Sorting out someone's tax affairs after they die

When someone dies it's important to sort out their tax and National Insurance as soon as possible. There may be tax to pay or a rebate due. The 'personal representative' (that is, the executor or administrator) sorts out the deceased person's tax affairs, as well as the rest of the estate.

Contacting the deceased person's Tax Office

When someone dies, the personal representative needs to contact HM Revenue & Customs (HMRC) as soon as possible. They will tell you what you need to do and send you certain tax forms.

When you contact HMRC, you will have to give them the deceased person's name, address and, if possible, their National Insurance number.

Tax forms you'll need to complete

If the person paid tax through PAYE, HMRC will send you form R27 'Potential repayment to the estate' to complete. You can also download this form below.

If they paid tax through Self Assessment, you can opt to fill in form R27 in full - or only in part and then complete a Self Assessment tax return immediately or at the end of the tax year. (If you choose to complete form R27 in full, HMRC may still need to ask you to fill in a tax return as well later.)

Filling in Form R27

Form R27 is used to calculate whether any tax is owed or a rebate is due. It must be signed by the personal representative. You can also use this form to authorise someone else to deal directly with HMRC on your behalf.

The form asks about the deceased person's income and capital gains, including:

  • paid employment
  • other earned income
  • state and other pensions
  • annuities
  • benefits
  • bank and building society interest
  • other taxable income, like rent from property
  • UK dividends and tax credits

Completing the Self Assessment tax return

The Self Assessment tax return comes with help notes. The information you'll need to supply is similar to that for form R27, but you will also be asked about the deceased person's:

  • capital gains
  • outstanding student loans
  • payments qualifying for tax relief

Tax return deadlines

You need to send the tax return back by the later of:

  • the 31 January after the end of the year to which it relates
  • three months and seven days after its issue date

Either way, HMRC will calculate the deceased's tax for you if you wish. However, bear in mind that if tax is owed you still need to make any payment by the above deadlines. HMRC can only guarantee to let you know how much is due and still give you sufficient time to pay on time if they receive the return no later than:

  • the 30 September directly following the end of the tax year to which it relates
  • two months after its issue date

If you send the return in later and haven't calculated the tax you can estimate any tax due and enclose a payment if relevant. But if this is below the actual amount due, interest would be payable on the difference if it's received after the final deadlines. If no payment is made by the final deadline and it turns out that tax is due you may incur a late payment charge as well as interest.

You can complete the return online. Before you send it you must contact HMRC and ask them to note on the deceased person's tax records that you're their personal representative. You then need to register for the online service using the deceased person's name and Unique Taxpayer Reference.

Form R40

Form R40 is a special form for claiming tax rebates. You can fill this in right away - or later on when you know that a refund is definitely due.

Contacting bank and building societies

It's important to tell banks and building societies as soon as possible that the account holder has died because:

  • any interest paid after the date of death belongs to the deceased person's estate
  • a non-taxpayer's right to receive interest tax-free will end; from the date of death savings interest will be taxed

Tax will be deducted from the account until the estate has been sorted out.

What happens about Income Tax allowances?

The deceased person will get their full tax-free personal allowance for the year of their death. They will also get a full year's entitlement to any blind person's or married couple's allowance that was due to them for the full year.

If they did not receive enough income to use the whole of the blind person's or married couple's allowances, the personal representative can arrange for the unused allowances to be transferred to a surviving spouse or civil partner. Ask HMRC for the forms to do this.

National Insurance

If they were employed

If the deceased was employed no National Insurance contributions are payable on any earnings paid by their employer after the date of their death.

If they were self-employed

If the deceased was self-employed you will need to contact HMRC so that they can ensure that existing Direct Debit or other arrangements for collecting their Class 2 National Insurance contributions are cancelled.

Any Class 4 contributions will be dealt with automatically through their Self Assessment tax return.

Capital Gains Tax (CGT)

As the personal representative you may have to pay Capital Gains Tax if money is made from selling the property or possessions of the deceased. However, you are treated as acquiring those assets at their market value at the date of death so Capital Gains Tax is only payable on them if you dispose of them for more than this value - and only if the total gains exceed a limit called the 'annual exempt amount'. To check the annual exempt amount and Capital Gains Tax rates and to find out how to calculate any Capital Gains Tax that may be due, use the link below.

If you transfer an asset to a beneficiary under the terms of the deceased's will or the rules of intestacy (where there is no will), the beneficiary is treated as having acquired the asset at its market value at the date of death and no Capital Gains Tax is payable on it by you.

A personal representative gets the same annual exempt amount as an individual for the tax year of death and the two subsequent years (thereafter, none).

Ask HMRC how you should declare gains that may be liable to Capital Gains Tax. It may not be necessary to fill in a Self Assessment tax return.

Dealing with Inheritance Tax

Inheritance Tax is payable if the estate - the money, property and possessions left by the deceased - is above a certain value (after exemptions). The executor or administrator has to make sure the tax is paid. If Inheritance Tax is due you normally need to have paid at least some of this before you can apply for probate. Read more in our related articles below.

If you need help or advice

You may find it useful to ask a solicitor or accountant for help and advice. They will charge for this service. You can also get free help from the Citizens Advice Bureau and from the Probate and Inheritance Tax Helpline listed above.

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