Executor Tax Guide: Key UK Tax Responsibilities
If you’ve recently been named as an executor, or you’re already sorting through someone’s affairs, it’s important to understand what HMRC expects, especially when it comes to tax.
HMRC takes the tax responsibilities of executors seriously. As an executor, you’re legally responsible for settling the deceased’s tax affairs and paying any tax due during the administration of the estate. You don’t need to be a tax expert, but getting things wrong can cause problems — both for you personally and for the people inheriting the estate.
In this article, we’ll walk you through the key tax issues you’re likely to face, explain common mistakes, and tell you when it’s a good idea to get professional help.
1. Final Tax Return – Up to the Date of Death
The first step is to check whether the deceased needs a final Self Assessment tax return covering the period from the start of the tax year up to their death.
This is usually necessary if they were:
Self-employed
Receiving rental income, dividends, or foreign income
Already filing Self Assessment returns
Holding savings or investments that weren’t taxed at source
You’ll need to gather all relevant paperwork — bank statements, pension details, dividends, and records of any capital gains made before death. It’s a good idea to be proactive about this; the best outcome is that HMRC owes a refund.
2. Tax on Income and Gains After Death
After the person has died, their estate may still receive income — for example, from rented property, bank interest, or dividends — and may sell assets such as shares or property.
As executor, you’re responsible for registering the estate with HMRC and paying any Income Tax or Capital Gains Tax arising during this “administration period”.
When can you use the informal reporting route?
If all of the following apply, you can report tax owed by letter instead of filing full tax returns:
The estate was worth less than £2.5 million at death
The total Income Tax and Capital Gains Tax due during administration is less than £10,000
You didn’t sell more than £500,000 worth of assets in any one tax year during administration
If you meet these conditions, write to HMRC once administration is complete. If not, you’ll need to register the estate for Self-Assessment and file formal returns.
3. Inheritance Tax (IHT)
Inheritance Tax is often the most complex part of the tax process for executors.
The nil-rate band means the first £325,000 of the estate’s value is usually free of IHT, with some extra relief if the deceased left a home to their children or grandchildren.
You’ll need to complete:
Form IHT205 for simple estates where no tax is due, or
Form IHT400 for larger or more complex estates
If IHT is payable, it must be paid within six months of the end of the month of death — or interest will be charged.
4. Capital Gains Tax (CGT) on Estate Assets
If the estate sells assets such as property or shares after death, Capital Gains Tax may be due.
Here’s what you need to know:
The estate gets the full CGT annual exemption, currently £3,000, for the tax year of death and the following two tax years.
After that, no exemption applies, and gains are taxable from the first pound.
5. Checking for Earlier Tax Liabilities or Refunds
It’s worth checking whether any earlier tax returns were missed or if tax was underpaid.
Likewise, there may be overpayments due a refund. Making sure everything is up to date before distributing the estate can avoid problems down the line.
6. Getting Tax Clearance from HMRC
Once you’ve submitted all the returns and paid any tax due, you can ask HMRC for formal clearance confirming that the estate’s tax affairs are complete.
This clearance gives you peace of mind that there will be no further Income Tax or Capital Gains Tax to pay, protecting you from personal liability.
To request clearance, send HMRC a letter including:
The deceased’s name and National Insurance number
The estate’s Unique Taxpayer Reference (UTR)
Confirmation that all income and gains have been reported and tax settled
Confirmation that the estate is ready to be distributed
Please note that this clearance covers Income Tax and Capital Gains Tax only. Clearance for Inheritance Tax is a separate process.
Common Pitfalls for Executors
Even if an estate seems straightforward, it’s easy to make mistakes. Some common errors include:
Forgetting to file a final tax return for the deceased
Missing deadlines for Inheritance Tax or CGT
Letting the CGT exemption expire after two years
Paying out the estate before taxes are fully settled
Not considering lifetime gifts that could affect IHT
If you’re unsure about anything, it’s best to get advice early.
When to Get Help
Being an executor carries legal and financial responsibilities. While you don’t have to be a tax expert, HMRC expects you to take reasonable steps to get things right.
We can help with:
Preparing final tax returns
Registering the estate and filing post-death returns
Calculating and reporting Inheritance Tax and Capital Gains Tax
Dealing with HMRC on your behalf and getting clearance
Advising on complex situations like trusts, overseas assets, or lifetime gifts
If you’re feeling overwhelmed or if the estate is more complicated than you expected, please get in touch.
Need Help with Executor Tax Responsibilities?
If you’re acting as an executor and want to make sure everything is done correctly and on time, we’re here to help.
We’re here to help, contact us below or call 01442 828006
