Do executors need to file tax returns
One of the most common questions executors ask is whether they need to submit a tax return after someone dies.
The answer is that it depends on the circumstances. In some cases HMRC will require a final tax return for the deceased. In other situations the position can be resolved without a formal return.
Understanding what is required can help executors avoid unnecessary delays when administering the estate.
What happens to someone’s tax affairs when they die?
When a person dies, their tax affairs do not immediately come to an end.
There are usually two stages to consider:
the individual’s tax position up to the date of death, and
the tax position of the estate during administration.
Executors are responsible for dealing with both of these stages.
The first step is to determine whether HMRC requires a final tax return for the deceased.
When HMRC may require a final tax return
HMRC will normally request a final Self Assessment tax return where the individual was already within the Self Assessment system.
This may be the case if the person:
was self-employed
had rental income
received untaxed income
had significant investment income
realised capital gains
If the deceased was already submitting Self Assessment returns, HMRC will usually expect a final return covering the period from the start of the tax year to the date of death.
Executors will normally receive correspondence from HMRC confirming whether a return is required.
Situations where a tax return may not be needed
In some circumstances a full Self Assessment return may not be necessary.
For example, if the deceased:
was taxed entirely through PAYE
had relatively straightforward financial affairs
did not receive significant untaxed income
HMRC may be able to settle the final tax position without requiring a return.
However, this should not be assumed. Executors should normally notify HMRC of the death so that HMRC can confirm what is required.
How HMRC is notified about the death
In many cases HMRC will be notified automatically through the Tell Us Once service, which is often used when registering the death.
Where this service is used, HMRC will review the individual’s tax record and decide whether further action is required.
If a final tax return is needed, HMRC will normally contact the executor or the personal representatives of the estate.
What information executors may need to gather
If a final tax return is required, executors may need to obtain details of income received before death.
This could include:
employment income
pension income
bank interest
dividends
rental income
In some cases this information may already be available from the deceased’s records. In other situations executors may need to contact financial institutions to obtain the relevant figures.
Gathering this information early can make the process much smoother.
What happens after the final tax return?
Submitting the final tax return deals with the deceased’s tax position up to the date of death.
However, executors should remember that tax matters may continue during the administration of the estate.
For example, the estate may receive income after death, such as:
bank interest
dividends
rental income
In some circumstances this income must also be reported to HMRC.
Executors may also need to consider Capital Gains Tax if assets are sold during the administration period.
Common misunderstandings
Many executors assume that once the final tax return has been dealt with, there are no further tax obligations.
However, this is not always the case.
Some common misunderstandings include:
assuming HMRC will automatically close the tax record
overlooking income received by the estate
missing reporting obligations where assets are sold
Understanding the different stages of estate administration can help avoid these problems.
When professional advice may help
For many executors, dealing with tax matters is unfamiliar territory.
Advice may be particularly helpful where:
the deceased had complex financial affairs
the estate includes property or investments
assets are likely to be sold during administration
executors are unsure whether a tax return is required
Taking advice early can often prevent delays in the administration process.
How we can help
We regularly assist executors with the tax aspects of administering estates.
This may include:
determining whether a final tax return is required
preparing tax returns for the deceased
advising on tax issues arising during estate administration
dealing with HMRC correspondence
If you are acting as an executor and would like guidance on the tax position, we would be happy to discuss your situation.
