What happens to Income Tax when someone dies?

When someone dies, many people just focus on the Inheritance Tax. However, there is another type of tax that needs to be considered: Income Tax.

As an Executor or Administrator, part of your role is to ensure that the deceased person’s tax affairs are brought up to date. This includes checking whether any Income Tax is owed or whether a refund is due. While not every estate will have an Income Tax liability, every estate should have its Income Tax position reviewed.

Does Income Tax stop when someone dies? 

Not immediately.

Income Tax must still be considered for the period between the start of the tax year (6 April) and the date of death. This means HM Revenue & Customs (HMRC) may need to review:

• Salary or wages received before death

• State Pension payments

• Private or workplace pensions

• Savings interest

• Dividend income from shares

• Rental income from property

• Other taxable income

In some cases, the deceased may have paid too much tax, and the estate could be entitled to a refund. In other cases, additional tax may be due, as not all the income was reported.

Do I need to contact HMRC?

HMRC is usually informed of a death through the government’s Tell Us Once service. However, Executors should not assume that HMRC has a complete picture of the deceased’s finances. You may still need to provide information about pensions, savings, investments, or other assets. This helps ensure that any tax calculations are accurate.

Can an estate receive an Income Tax refund? 

Yes.

Everyone receives a Personal Allowance each tax year. This is the amount of income that can be earned before Income Tax becomes payable. If someone dies part-way through the tax year, they are still entitled to their full annual Personal Allowance. As a result, it is common for an estate to receive an Income Tax refund. HMRC will calculate whether too much tax was paid and, if so, arrange for it to be repaid to the estate.
 

What if the deceased completed Self-Assessment tax returns? 

If the deceased was self-employed, received rental income, had significant investment income, or was already registered for Self-Assessment, additional tax returns may need to be completed. This includes a final tax return covering the period up to the date of death. In some circumstances, HMRC may also ask for outstanding tax returns from previous years if they were not submitted during the person’s lifetime.

Does an estate pay Income Tax during probate?

Yes, an estate does not have a personal allowance like an individual.

The estate may continue to generate income while it is being administered. For example:

• Savings accounts may earn interest

• Shares may pay dividends

• Rental properties may continue to generate income

Depending on the amount received, the estate itself may have tax reporting obligations during the administration period. This is one reason why estate administration can take longer than many people expect, as you cannot review the tax for the period of administration until all assets have been dealt with. 

Can estate administration be delayed due to Income Tax?

Yes.

Before an estate can be fully distributed, Executors should ensure that all tax liabilities have been settled. HMRC may need time to review information, calculate any tax due, and confirm that no further payments are required.

Until this process is complete, Executors may decide to retain some funds within the estate to cover any outstanding liabilities. This helps protect both the estate and the Executor from future claims.

What happens if Income Tax is overlooked?

Executors have a legal responsibility to administer an estate correctly.

If assets are distributed before tax liabilities are identified and paid, the Executor could become personally responsible for settling the debt. This is why it’s important to review the deceased’s financial affairs carefully and ensure all taxes have been accounted for before making final distributions to beneficiaries.

At Kings Court Trust, we help families navigate the probate process and ensure that important matters, including Income Tax reviews, are handled correctly. If you would like support with probate or estate administration, our team is here to help.