What tax does an estate pay during the administration period?

Full answer

The 'administration period' runs from the date of death until the estate's affairs are settled and assets distributed. During this time the estate is a separate taxpayer and the personal representatives (executors or administrators) are responsible for any tax on income and gains arising after death. This is distinct from Inheritance Tax, which is charged on the value of the estate at death. Income Tax: income received during administration - rent, interest, dividends - is taxable, but the estate gets no personal allowance and no savings or dividend allowances. Non-dividend income is taxed at the basic rate of 20% and dividend income at the dividend ordinary rate (10.75% for 2026/27). When income is later paid out to beneficiaries, they receive it with a tax credit and may reclaim tax if they are non-taxpayers, or pay more if higher-rate taxpayers. Capital Gains Tax: if the personal representatives sell assets for more than their value at death, CGT can arise. The estate has a single annual exempt amount of GBP 3,000, available for the tax year of death and up to two following tax years. Rates are 18% or 24% depending on the asset, and gains by estates are generally charged at the higher residential or non-residential rates. Worked example: an estate receives GBP 4,000 rent and GBP 1,000 bank interest during administration. With no allowances, GBP 5,000 is taxed at 20%, giving GBP 1,000 of Income Tax payable by the personal representatives. 2026/27 detail: a simplified rule means estates with only small amounts of income (historically modest savings interest) may not need to report it, but check current HMRC limits. The frozen GBP 3,000 CGT exemption makes asset sales during administration more likely to be taxable. Use a capital gains tax calculator for disposals and an income tax calculator for estate income.

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