Sadly, the only two things in life you can be sure of are death and taxes. It’s not an easy subject to think about, but a person’s tax affairs will need dealing with even after they’ve passed away. If this is your first encounter with a Self Assessment tax return, we’ll take a step back for a second.
A Self Assessment tax return is essentially a declaration which shows a person’s untaxed income, expenses, and other costs. HMRC use the figures reported to calculate how much tax that person still owes.
Generally only those who are self-employed or who have extra untaxed income coming in need to complete one. For instance, the director of a limited company needs to complete a Company Tax Return for the company, but might also need to submit a Self Assessment return to declare any personal income that they take from the business which hasn’t already been taxed (normally in the form of dividends).
Some income doesn’t need to be included in a Self Assessment tax return, such as any interest earned from an ISA. This is because it’s tax-free.
If the person who died was submitting a Self Assessment tax return each year, or was about to start doing so, then one final return following their death will need submitting too.
Do I need to report the death to HMRC?
When a person passes away, you’ll need to let the government know as soon as possible. You can use the Tell Us Once service to do this and like the name suggests, you tell them once and the service will pass this information on to all of the relevant government agencies. If you use this service, you don’t need to contact HMRC separately.
You’ll be asked to provide the name and address of someone they can contact regarding the deceased person’s tax affairs, as well as to confirm the exact date of death. HMRC will also ask for some details about the person who died, including:
Their National Insurance (NI) number
Their full address
Information about their last employer, such as the company name and address
Again, you can contact the HMRC bereavement and deceased service if you have any questions or are struggling to find the records required. You might also need to include information which relates to the administration period.
What’s an administration period for someone’s estate?
The gap in time between the day after the person’s death and the date when their estate is settled is called the ‘administration period’. If you are the executor or administrator of their estate, then you might need to give HMRC certain information about the administration period.
The size of their estate will determine what information you must provide. You might need to include money which arrives in to their estate during the administration period on their Self Assessment tax return. This would include things like any rent payments received from tenants, or income from dividends received after death.
How does this work?
If you need to send a Self Assessment tax return to cover the administration period, and any of the following apply, then you should also complete the trust and estate section:
The total amount of tax due for the administration period exceeds £10,000 (this would be Income Tax and Capital Gains Tax)
Money resulting from the sale of estate assets by administrators or executors in any tax year that ended before 6th April 2016, which totalled more than £250,000
More than £500,000 resulted from the sale of estate assets by administrators or executors in the current tax year
The estate’s value at the time of death was more than £2.5 million
Will I need to register for Self Assessment to submit a tax return for someone who has died?
Once you register the estate, HMRC will send a Unique Taxpayer Reference (UTR) number. This will be different to the UTR number that was issued to the person who has passed away, so mark them clearly to avoid getting confused.
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When do I need to submit the tax return for someone who died?
HMRC will confirm the tax return deadline in the letter which comes with the form. It can be stressful enough completing Self Assessment at the best of times, so you can ask an accountant to do this for you.
Who pays the Self Assessment tax bill if someone dies?
Any unpaid tax due at the date of the person’s death should be paid by the personal representative dealing with the assets of the estate. In other words, their estate pays their tax bill.
Many banks will make a payment directly to HMRC. However, if no funds are available (perhaps because probate has not been granted) a loan or other financing may need to be arranged to pay the tax due. Any tax rebates that are owed will form part of the deceased’s estate.
Don’t forget, your own tax position may also now change
When a spouse, civil partner or partner passes away, it can affect your own tax position too. A common example would be where the surviving partner starts receiving income from rental properties or investments that used to be paid to the deceased.
It’s not uncommon for non-taxpayers suddenly need to start paying tax because they’ve inherited an income stream from someone who has died.
When you contact HMRC, they will review your new tax position and also confirm if you must start submitting Self Assessment tax returns for yourself. If you do, you’ll need to register in your own right before the registration deadline. You’ll receive your own unique UTR number, which will be different to the one you received to submit a return for the estate.