Income tax and CGT during estate administration

Q: How might the figures look?

Illustration only. Peter dies in June 2026 leaving everything to his daughter. In 2026 to 2027 the estate receives rent of £8,000 and dividends of £2,000. The executors pay £1,600 on the rent and £215 on the dividends. They also sell shares worth £50,000 at death for £60,000: the £10,000 gain less the £3,000 annual exempt amount leaves £7,000 taxed at 24%, or £1,680. The estate was worth under £2.5 million, sales were under £500,000 and total tax is £3,495, so the informal procedure is available. If the daughter receives more than £8,185 in the year, her R185 shows £6,400 net in box 16 with £1,600 tax and £1,785 net in box 18 with £215 tax.

From the day after death until the administration is complete, the personal representatives pay income tax on the estate’s income at 20%, or 10.75% on dividends from 6 April 2026, with no personal allowance, and capital gains tax at 24% with an annual exempt amount for only three tax years. Simple estates settle this by letter under HMRC’s informal procedure; larger ones register and file a trust and estate return. Beneficiaries of residue receive an R185 showing the income treated as theirs and the tax already paid.

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When does the administration period start and end?

HMRC’s Trusts, Settlements and Estates Manual at TSEM7360 says the period of administration starts on the day after death and ends when the personal representatives have taken all the steps needed to complete the administration. That end date is a question of fact. Sometimes the date the inheritance tax clearance certificate is issued is taken as the end; the Capital Gains Manual at CG30700 says HMRC would normally argue it ends when the residue has been ascertained, following CIR v Sir Aubrey Smith.

Income up to the date of death belongs on the deceased’s own final Self Assessment return, not the estate’s. Keeping the two periods separate is the first discipline in any estate file.

How is the estate’s income taxed?

All income arising on estate assets during administration is the income of the personal representatives (TSEM7904). GOV.UK’s guidance on dealing with an estate says they must pay income tax on the full amount, estates get no allowances on savings, income or dividends, and the rates are:

Type of income	Rate for personal representatives
Dividends received on or after 6 April 2026	10.75%
Dividends received from 6 April 2022 to 5 April 2026	8.75%
Rent, trading profits, interest and other income	20%

There is no personal allowance and no higher rate (TSEM7413). Since 6 April 2024 an estate whose total income in a tax year is £500 or less pays no income tax on it and need not report it. The £500 applies to each tax year separately, unused amounts cannot be carried forward, and if income exceeds £500 the whole amount is taxable with no deduction. ISAs keep their exemption until the estate is closed, the account is closed or three years have passed since death, whichever is sooner, and Premium Bond prizes are exempt (TSEM7410, TSEM7413).

Personal representatives can claim general reliefs, such as loss relief if they carry on the deceased’s business and relief for interest on a loan taken to pay inheritance tax (TSEM7390).

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How do personal representatives pay capital gains tax?

Under section 62 of the Taxation of Chargeable Gains Act 1992, the personal representatives acquire the deceased’s assets at market value at the date of death, and they are treated as a single and continuing body. Our page on the CGT uplift on death explains the base cost. A gain arises only on growth in value after death.

CG30600 allows the full annual exempt amount for the tax year of death, however short, and for the two following tax years, but none after that. GOV.UK shows the annual exempt amount for personal representatives as £3,000 for 2026 to 2027 and the rate for personal representatives as 24%. Disposals of UK residential property usually need reporting within 60 days (see the 60 day property return).

Passing an asset to a beneficiary does not trigger a gain: section 62(4) says no chargeable gain accrues to the personal representatives and the legatee takes over their acquisition. CG30700 adds that gains on sales fall on the personal representatives unless they have taken steps to vest the assets in the legatees before the sale. Where beneficiaries have unused annual exempt amounts or lower rates, appropriating the asset to them first and letting them sell can reduce the tax. Our page on selling inherited property covers that choice.

When can the informal payment procedure be used?

If the estate has no chargeable income and no chargeable gains, nothing needs to be reported, provided no relief or election needs claiming. Otherwise TSEM7410 allows personal representatives to settle by letter, known as informal arrangements, if all of these apply:

the estate was worth less than £2.5 million at death;
the total income tax and capital gains tax due for the administration is less than £10,000; and
the proceeds of assets sold in any one tax year, chargeable or not, are less than £500,000.

At the end of the administration they write to HMRC Bereavement Services with their own details, the deceased’s name, address, National Insurance number and UTR, a year by year breakdown of income and gains, and any tax already reported and paid, for example on a residential property return. HMRC then sends details of how to pay with a payment reference (TSEM7413). Informal arrangements may not be accepted once HMRC has issued a notice to file a trust and estate return.

When must the estate register and file a return?

GOV.UK’s guidance on registering an estate requires registration if the estate was worth more than £2.5 million at death, assets sold by the personal representatives in a tax year exceed £500,000, or the income tax and capital gains tax for the administration period exceeds £10,000. The deadline is 5 October after the tax year in which the estate first has income or gains on which tax is due. HMRC usually sends a UTR within 15 working days, and the trust and estate return can be filed on paper (SA900) by 31 October or online by 31 January. Each estate needs its own organisation Government Gateway account.

To help close an estate, HMRC will accept the final return before the end of the tax year in which the administration ends and, on request, confirm in writing that it does not intend to enquire into it. TSEM7418 stresses that this practice is not statutory, but it usually ends HMRC’s interest.

What is an R185 and how is the beneficiary taxed?

Form R185 (Estate Income) is the statement personal representatives give residuary beneficiaries. For beneficiaries with an absolute interest in residue, TSEM7608 explains that income is treated as theirs only when they receive a payment. The deemed income for a tax year is the lower of the amount paid in that year and the beneficiary’s share of net residuary income to date, less amounts already taxed in earlier years. Anything not covered is carried forward, and in the final year the whole balance is treated as paid. Payments are treated as coming first from income taxed at the basic rate and then from dividend income.

The R185 for 2026 to 2027 shows the net income and the tax paid on it in boxes that match the SA107 trust pages: box 16 for non savings income, box 17 for savings income and box 18 for dividends taxed at 10.75%. Income that escaped tax under the £500 rule is not taxable on the beneficiary and is left off the form. Tax shown as non repayable cannot be refunded, though it counts towards a higher rate liability.

A beneficiary with a limited interest, such as a life tenant, is taxed on the grossed up amount of each payment, with any balance taxed when the administration ends (TSEM7654).

Which expenses reduce the beneficiaries’ income?

Section 666 of the Income Tax (Trading and Other Income) Act 2005 deducts expenses of managing the estate’s assets in working out residuary income, but only if they are properly chargeable to income under general law (TSEM7906, TSEM7910). TSEM7912 accepts fees for estate income tax returns and the income share of estate accounts. TSEM7914 excludes funeral costs, probate fees, inheritance tax and interest on it, the deceased’s own debts, capital gains tax return fees and returns for the period before death. The deduction does not reduce the tax the personal representatives pay; it reduces the income passed to beneficiaries.

How might the figures look?

Illustration only. Peter dies in June 2026 leaving everything to his daughter. In 2026 to 2027 the estate receives rent of £8,000 and dividends of £2,000. The executors pay £1,600 on the rent and £215 on the dividends. They also sell shares worth £50,000 at death for £60,000: the £10,000 gain less the £3,000 annual exempt amount leaves £7,000 taxed at 24%, or £1,680.

The estate was worth under £2.5 million, sales were under £500,000 and total tax is £3,495, so the informal procedure is available. If the daughter receives more than £8,185 in the year, her R185 shows £6,400 net in box 16 with £1,600 tax and £1,785 net in box 18 with £215 tax.

What mistakes come up most often?

Deducting £500 from income that exceeds the limit.
Claiming a personal allowance or the dividend allowance for the estate.
Claiming an annual exempt amount in a fourth or later tax year.
Selling assets through the estate when appropriating them to beneficiaries first would have used their own allowances.
Forgetting the R185, leaving beneficiaries unable to complete their returns or reclaim tax.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.