Deceased’s income tax position

Produced by Tolley

The following Trusts and Inheritance Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Deceased’s income tax position
  • Taxable income in year of death
  • Employment income
  • Pensions and social security income
  • Trading income
  • Capital allowances
  • Property income
  • Dividend income
  • Interest
  • Gains on life insurance policies
  • More...

Deceased’s income tax position

Taxable income in year of death

When an individual dies, there is a personal income tax liability on the income that arises in the period starting on 6 April before death and ending with the date of death. This note describes how to quantify that income and calculate the tax due.

Generally speaking, taxable income in the year of death is calculated in the same way as for any other tax year, except that the end of the period is the date of death. However, there are a number of special rules that have to be considered and these relate mainly to the time at which income and deductions are taken into account. This is important for deciding whether the income arising is that of the deceased or that of the personal representatives.

For all sources of income, the usual basis of assessment rules apply, and most questions about calculation and recognition can be resolved by reference to them. A number of sources of income are considered below. These highlight rules that are in point only because the taxpayer has died. Links are provided to the relevant guidance notes in the Personal Tax module which provide further information on the taxation of those types of income.

Employment income

Employment income is assessed on a receipts basis. So the statutory basis of assessment for earnings that are received (or remitted to the UK) after a person’s death, is that they are assessable on the personal representatives and they are not included in the deceased’s taxable income. The same principle applies to taxable termination payments received after death.

The personal representatives may always opt for this strict basis of assessment if they wish. However, in practice, HMRC will treat earnings received after death as if they were received by the deceased before death.

Pensions and social security income

Pension income and social security income are taxed on the amount of income accruing in a tax year. The person charged

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