Tax After a Death: Income Tax and the Estate

When someone dies, their tax affairs do not end with them. Income they received up to the date of death still has to be accounted for, and responsibility for settling it passes to the person who handles the estate. How much tax is owed, or refunded, depends on what the person earned and how it was paid: someone taxed through payroll or a pension is often owed money for the part of the year they did not live, while someone who completed Self Assessment will have a final return to file.

The tax on money paid out after the death follows different rules. A pension lump sum is taxed according to the age of the person who died: if they died after their 75th birthday, the person receiving the lump sum pays income tax on it as they would on other income¹. Where the person died before age 75, death benefits including lump sums and inherited drawdown pensions are typically taken free of income tax².

This page explains how the deceased person's income tax is settled, what forms and deadlines apply, what happens to refunds and unpaid tax, and the significant change coming for pensions and Inheritance Tax from 6 April 2027.

What happens to someone's income tax when they die

A person's income tax is worked out to the date they died, within the tax year that was running at the time. The tax year runs to 5 April like any other, and HMRC settles the person's affairs using the income actually paid to them before their death. What happens next depends on how their tax was collected.

For someone taxed through Pay As You Earn (PAYE), through an employer or a pension provider, HMRC holds the records of what was paid and what tax was deducted. Once it knows about the death, it can compare the two and work out whether too much or too little tax was taken. For someone in Self Assessment, a final return covering the year of death is normally needed. Around 7 million Self Assessment taxpayers also have PAYE income because they are employed or receive a pension, so many estates involve both routes⁶.

Money paid out after the death is taxed differently, and pensions are the main example. Where the person died before age 75, death benefits including lump sums and inherited drawdown pensions are typically taken free of income tax². Where they died on or after age 75, these benefits are usually taxed as income at the recipient's marginal rate². Pension Wise puts the position plainly for someone deciding what to do with their pot: beneficiaries might pay income tax to receive the money, depending on how old the person was when they died⁸.

There is also a timing rule on lump sums. HMRC currently allows up to two years for a death benefit lump sum to be paid before it is potentially subject to a tax charge⁹. And where tax was overpaid on a lump sum, form P53ZDB exists to claim it back¹⁰.

The personal representative is responsible for the tax

The duty of settling the deceased person's tax falls to their personal representative. The Pensions Ombudsman defines this person simply: a personal representative is the person who has been issued with a grant to administer a deceased person's estate¹¹. That grant is probate where there is a will naming an executor, or letters of administration, or confirmation in Scotland, and the same person is often called the executor or administrator.

The responsibility is real and personal. The personal representative usually pays any Inheritance Tax due before the inheritance is passed on¹², and the same logic applies to income tax: tax owed by the person who died is a debt of the estate, and the representative settles it out of the estate's money before beneficiaries receive anything.

The first practical step is telling HMRC. The Bereavement Helpline is the usual route, and if you cannot call, you must fill in form P1000 to tell HMRC who is dealing with the money, property and possessions of the person who died¹³. If the death was reported through the Tell Us Once service, much of this may already have been done, but it is worth confirming HMRC has the details. Other benefit-related changes also need reporting, for example telling HMRC if a child dies, since Child Benefit stops and overpayments can otherwise build up¹⁴.

One point worth knowing: Marriage Allowance can still be claimed after a partner's death. If your partner has died since 5 April 2022 you can still claim, by phoning the Income Tax helpline¹⁵. This can produce a refund for the estate where the allowance was never transferred while the partner was alive.

Tax up to the date of death: the final tax year

The final tax year is the one in which the person died, and it is settled like any other year, but only for the income actually received before the death. HMRC's checks use information supplied by employers, pension providers, banks and building societies¹⁶, so the calculation reflects what was actually paid, not a full year's worth of income.

This is why a death part way through a tax year so often produces a refund for someone taxed through PAYE. A person who received a salary or pension from 6 April and died in, say, November will have had a full year's personal allowance applied through their tax code but only received part of a year's income. The same applies to pension income: the Pension Protection Fund confirms that where a member dies before an increase to their compensation has been paid, arrears due up to the date of death are still payable¹⁷.

Not everything is straightforward, and some estates reach back into earlier years. The public service pensions remedy is the clearest example: where tax was overpaid by a member who has since died, the legal personal representative must report charges or changes by 31 January 2027, or by 31 January 2031 in the cases covered by the extended time limits¹⁸. If the person who died was affected by that remedy, this deadline sits alongside everything else.

Where the person had income from abroad, or property or investments that need valuing, the estate's figures have to be established first. HMRC requires Inheritance Tax to be paid by the end of the sixth month after the person dies to avoid paying interest⁴, and valuing the estate correctly is part of meeting that.

Most people who paid through PAYE are owed a refund

For most people whose tax was collected through payroll or a pension deduction, the final settlement ends in a refund. The reason is mechanical: tax codes spread a year's allowance and rate bands evenly across twelve months, so someone who dies part way through the year has usually overpaid relative to the income they actually received.

HMRC will send a tax calculation letter, known as a P800, if it finds a difference between what was paid and what was owed at the end of the tax year²⁰. The letter shows four things: taxable income, tax already paid, any tax owed, and any tax overpaid³. Where the calculation shows a refund, the money is paid to the estate and handled by the personal representative.

Two cautions apply. First, HMRC may send a text message saying a tax refund is due, but only where it has already sent a letter and had no response²¹. A text about a P800 refund that arrives with no letter behind it should be checked before anyone acts on it. Second, where the P800 shows tax owed rather than a refund, HMRC's usual approach of changing the following year's tax code to collect it³ cannot work for someone who has died, so the amount is settled with the estate instead.

When HMRC sends a calculation instead of a tax return

Many estates never see a Self Assessment return at all. Where the person's affairs were simple and their income was taxed at source, HMRC settles the year by calculation, in one of two forms: a P800 tax calculation, or a Simple Assessment letter²⁰.

A Simple Assessment is used where tax is owed that has not been collected through a code. HMRC checks how much tax was paid using information from employers, pension providers, banks and building societies, and issues the assessment after the end of the tax year to collect what remains¹⁶. A worked example in the official guidance shows HMRC collecting £236 of remaining tax by Simple Assessment for a taxpayer with a £16,000 State Pension and £1,500 of private pension income¹⁶. For an estate, the same process applies to the deceased person's final year: the letter arrives, the amount is checked, and the tax is paid from the estate.

If the calculation looks wrong, query it. HMRC will correct a return that contains an obvious error or is missing information, and sends a notice explaining why²². A personal representative who disagrees with a correction notice has a route to challenge it, and should do so before paying an amount that seems inconsistent with the person's actual income.

Tax returns for the deceased: paper forms and deadlines

Where the person who died was in Self Assessment, a final return is needed for the year of death, and the personal representative completes it. HMRC will normally re-issue the return to the representative once it has been told about the death.

Filing is done online in the large majority of cases: HMRC says 97% of people already file their Self Assessment return this way²³. A paper return is still possible, but the postal deadline is earlier, at 31 October²⁴. The online deadline is later, which matters for an estate juggling probate, the funeral and everything else at the same time.

Separate forms apply to Inheritance Tax rather than income tax, and the two are easily confused. Where Inheritance Tax is due or full details are needed, HMRC uses form IHT400²⁵. The current notes state you must send form IHT400 within 12 months of the date of death⁷. An earlier version of the notes put the deadline as within 12 months of the end of the month of death²⁶, so the documents differ on the exact wording; the current notes are the ones to follow, and leaving the form until the last weeks of the twelfth month is unwise either way.

The reporting rules changed for deaths on or after 1 January 2022²⁵. In Northern Ireland, an excepted estate means you do not need to fill in an HMRC form, but you must still give details of the assets you need a grant of representation for, and extra information for Inheritance Tax, on the Estate Summary Form (NIPF7)²⁵. Estates selling property also have their own reporting: Capital Gains Tax information is included when reporting the estate to HMRC on the sale of property belonging to someone who has died²⁷.

Late-filing penalties and a return for someone who has died

Penalties are triggered by missing the deadline for submitting a tax return or paying the bill²⁸. That rule does not distinguish between a living taxpayer and a personal representative filing for someone who has died, so the deadlines for the final return have to be treated as firmly as any other.

For Self Assessment, the penalty regime escalates with time, and the practical protection for a representative is to tell HMRC early if a deadline cannot be met. For Inheritance Tax accounts, the escalation is set out in the IHT400 notes: where the delay extends another 12 months, that is 2 years after death, you may be liable to an additional penalty of up to £3,000⁷. The same notes describe a complete exemption for deaths on active service, where a reduced form IHT400 can be delivered⁷, which is one situation in which the reporting burden is lifted rather than added to.

If the obstacle is paying rather than paperwork, the options are on the Inheritance Tax side. Tax can be paid in yearly instalments, with the first instalment due at the end of the sixth month after the death and payments then due every year on that date²⁹. Where the estate cannot raise the money before probate, it is possible to apply for a grant on credit for Inheritance Tax³⁰. Neither excuses the income tax return itself, but both can ease the cash squeeze that makes deadlines hard to meet in the first year.

Paying tax owed, receiving refunds and when debts are written off

Tax owed by the person who died is a debt of the estate, and the ordinary rule of estate administration applies: before beneficiaries can inherit anything, any debts owed by the estate normally need to be paid³¹. The personal representative pays the income tax, and any Inheritance Tax, from the estate before distributing what remains.

Refunds run the other way. A P800 refund owed to the person who died is paid to the estate and becomes part of the pot. On the pensions side, the rules now name who can receive money back: any repayment of overpaid Inheritance Tax under the relevant section may be paid to the deceased's personal representatives or to related beneficiaries, but not to the scheme administrator³². Where a refund of overpaid Inheritance Tax goes to a beneficiary and the deceased was aged 75 or over at death, the relevant amount is treated for tax purposes as though it were a pension paid under the registered pension scheme, accruing in the tax year in which it is paid³³. And in the new pensions regime, Inheritance Tax refunds will generally not be made until the deceased's account is settled².

Whether there is any Inheritance Tax at all depends on the estate's value. There might not be any to pay when the value of the estate is below the threshold, which makes it an excepted estate, though HMRC forms may still need completing³¹. In Scotland, the position is the same in principle: no Inheritance Tax is due where the value of the estate is below the threshold³⁴. Where the person who died was survived by a spouse or civil partner, any unused threshold from the first partner's estate can be added to the threshold³¹.

Some debts can be written off, but only at the creditor's discretion. In Scotland, if the person who died had council tax arrears, the local council can write off this debt, but there is no guarantee that it will do so³¹. Other sums are recovered as a matter of course: in Scotland, Funeral Support Payments are recovered from estates where the person who died was aged 18 or over and had money or assets³⁵. Where the estate simply cannot cover its debts, free debt advice charities and Citizens Advice can help establish what can and cannot be claimed, and the page on debts after death covers the order in which debts are paid.

Pensions and Inheritance Tax: the change from 6 April 2027

The biggest change on the horizon affects estates where the person who died with money still in a pension. As announced at Autumn Budget 2024, the government will bring most unused pension funds and death benefits into scope of Inheritance Tax from 6 April 2027³⁶. The change was made in law by Finance Act 2026³⁷, with draft information sharing regulations consequential to it³⁸.

Who does the reporting has shifted during the policy's development. The original 2024 consultation proposed that pension scheme administrators would become liable for reporting and paying any Inheritance Tax due on pensions to HMRC³⁸. The government has since moved to a personal representatives-led process: from 6 April 2027, personal representatives will be liable to report and pay any Inheritance Tax due on unused pension funds or death benefits³⁶. The 6-month payment deadline is not intended to change under this process².

The scale of the change is significant. Which? reports that a further 38,500 estates are expected to pay more tax than they would have otherwise³⁹. Beneficiaries receiving death benefits will be jointly liable with the personal representatives for paying any tax due³⁹. On the other side, unused allowances can pass to a surviving spouse, meaning up to £1m could be passed on tax-free on a second death³⁹. Not everything is caught: all death in service benefits payable from a registered pension scheme will be excluded from the value of an individual's estate for Inheritance Tax purposes from 6 April 2027³⁶.

To help representatives manage the timing, the government has provided a withholding mechanism. Where personal representatives reasonably expect Inheritance Tax to be due, they can direct pension scheme administrators to withhold 50% of the taxable benefits for up to 15 months from the date of death, though this does not apply to exempt benefits, funds under £1,000, or continuing annuities⁶. The legislation behind this allows personal representatives, or prospective personal representatives, to give a notice to the scheme administrator of a registered pension scheme⁴⁰, and caps the amounts that can be called for so that they do not exceed the difference between the benefits payable on death and amounts already paid or specified⁴¹.

Income tax on pension death benefits continues alongside the new Inheritance Tax charge, and the age rule still drives it: typically free of income tax where the member died before 75, taxed at the recipient's marginal rate where they died at or after 75². The practical message for anyone administering an estate after April 2027 is that a pension left untouched is no longer outside the tax net, and the pages on paying Inheritance Tax and receiving an inheritance cover the steps that follow.