Tax Returns for Deceased Estates: A 2026/27 Guide for Practitioners

When administering an estate, personal representatives (PRs) must accurately determine whether they need to file formal tax returns for deceased estates or if they can rely on HMRC’s informal payment procedures. HMRC sets strict thresholds governing this administrative burden.

PRs may report tax owed during the administration period by writing a letter to HMRC (the informal arrangement) only if all the following criteria apply:

• The total estate value at the date of death was less than £2.5 million.
• The total Income Tax and Capital Gains Tax (CGT) due for the whole administration period is less than £10,000.
• The proceeds from the sale of assets in any single tax year do not exceed £500,000.

If the estate breaches any of these thresholds, or if the estate’s tax affairs are inherently complex, HMRC Administration of Estates requires the PRs to deal with the period of administration on a formal basis by registering the estate and filing a Trust and Estate Self Assessment tax return (SA900).

Table: Reporting Thresholds for Deceased Estates

The £500 Tax-Free Amount for 2026/27

For the 2026/27 tax year, the law provides a vital administrative simplification for low-income estates. PRs do not need to report the estate’s income to HMRC if the total income of all types is less than £500 for the tax year.

This £500 tax-free amount applies for each tax year of the administration period, but PRs cannot carry over unused amounts from one year to the next.  The exemption applies to all types of income, calculated after deducting any income generated by Individual Savings Accounts (ISAs).  ISAs inherently continue to be exempt from Income Tax and Capital Gains Tax as “continuing accounts” until the estate is closed, or for up to three years following the person’s death, whichever is sooner.

Crucially, this is an absolute threshold, not an allowance. If the estate receives income exceeding £500 in the 2026/27 tax year, the PRs must report the full amount of the income; they cannot deduct the first £500 tax-free.

Tax Rates and Allowances for Personal Representatives

When PRs file tax returns for deceased estates, they must apply specific flat tax rates. PRs do not receive the standard Personal Allowance, nor are they subject to the starting or higher rates of tax, as these statutory mechanisms apply exclusively to individuals.

For Income Tax, PRs are liable at the basic rate appropriate to the nature of the income received:

• Dividend Income: Chargeable at 8.75%.
• Investment Income (e.g., bank interest): Chargeable at 20%.
• Other Income (e.g., rental profits): Chargeable at 20%.

For Capital Gains Tax (CGT), PRs benefit from a restricted Annual Exempt Amount (AEA) of £3,000 for the year of death and the following two tax years.  If PRs dispose of UK residential property, they must report the disposal and pay the applicable CGT within 60 days of the completion date, independent of the standard Self Assessment process.

“Where a return is needed, the SA905 summary page notes provide guidance on which boxes of the return need to be completed. … In this case any additional CGT due should be reported and paid as part of the Self Assessment process.”

Statutory Obligations to Beneficiaries

As PRs finalise the tax returns for deceased estates and distribute the residue, they carry specific statutory duties toward the beneficiaries. Under section 682A of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005), if a beneficiary with an absolute or limited interest in the residue requests it in writing, the PR must provide them with a formal statement (typically using Form R185).

This statement must clearly show the amount treated as estate income arising from the beneficiary’s interest for the tax year, alongside the amount of tax that income is treated as having borne.  Section 682A(4) strictly enforces this, granting the beneficiary the legal right to compel the PR to comply with the request.  A parallel provision exists for corporate beneficiaries under section 967 of the Corporation Tax Act 2009.

Residency of Personal Representatives

The residence status of the PRs heavily dictates the estate’s exposure to UK taxation. Under section 834 of the Income Tax Act 2007, the law links the PRs’ collective residence status directly to the deceased’s status at the date of death.

If the deceased person was UK resident when they died, the legislation explicitly treats any non-UK resident PRs as UK resident in their capacity as personal representatives.  Conversely, if the deceased was non-UK resident, UK resident PRs are treated as non-UK resident for the purposes of estate administration.

Consider reviewing the specific interactions between the £500 tax-free income limit and the 60-day residential property CGT reporting requirements when preparing administration period calculations.