Is any income tax owed?
The person who has died may have paid too much or too little income tax over the tax year, so you will need to make sure that they have paid the right amount up until the date they died.
If you have already contacted HMRC through the Tell Us Once or Bereavement Service, they will send you (the executor) a letter detailing exactly what is needed, if there is anything outstanding or if you need to fill in a Self Assessment tax return if the person who has died usually did one.
This process can be complicated if the person who has died had multiple sources of income as you will need to identify each of these for HMRC to see if there are any outstanding payments or rebates. This is where it is very important that you have contacted banks and organisations that the person who has died has used to make sure you have as clear a picture of their income as possible.
If there are income tax payments to be made, these will be taken from the estate of the person who has died. Some banks will make the transfer directly to HMRC so it is worth checking whether this is possible. Equally, if there are any tax rebates to be made, they will be paid to the estate.
These taxes will need to be settled by the end of the tax year, with all tax returns needing to be submitted by 31st January of the following year. For example, a tax return for the tax year 2020/21 needs to be filed electronically by 31 January 2022.
If the person who has passed away had any savings, dividends, owned and rented out properties or owned a business, they may have received income after their date of death. This amount will be viewed differently from the income they may have earned before they died and needs to be treated separately.
Any income that they have received after their date of death but before the estate is divided will fall into the ‘Period of Administration’.
You (the executor) will need to report this to HMRC so they can be taxed accordingly, as usually, this type of income doesn’t have tax applied to it before it’s received. After the date of death, there is no personal allowance available so all income is taxed at the following rates:
Savings income: 20%Dividends: 7.5%Other income such as rents or business profits: 20%
If the amount of tax you need to pay is less than £10,000 (any Capital Gains tax will add towards this sum) you can pay through the informal payment procedure. This procedure can only be used once and only after the period of administration has ended when all the income and chargeable gains of the period are known. This doesn’t affect the distribution of money to beneficiaries during the administration period.
If the amount of income tax owed is over £10,000 or if the estate was worth more than £2.5 million at the date of death, the estate will be viewed as a complex case and you will need to go through a Self Assessment process. HMRC will be able to advise on the steps you will need to take for this process. If you need any help, HMRC has a Bereavement Tool that will help you with the process, or you can contact the HMRC Bereavement Helpline on 0300 200 3300.