Calculating and paying tax after someone dies Gift
Calculating and paying tax after someone dies
When someone dies, their estate will normally have to pay any tax due before money is distributed to their heirs. Usually, when you inherit something, there is no tax to pay immediately, but you might have to pay tax later on. Here’s a guide to what tax you need to pay and when:
- Working out Income Tax up to the date of death
- Completing the tax return
- Paying tax on income received by the estate
- Is there Capital Gains Tax to pay on the estate?
- How much is Inheritance Tax and who pays it?
- Do I have to pay tax on my inheritance?
If you are an executor of an estate in Scotland and looking to obtain Confirmation and to wind up the estate, contact our solicitors for a quote on 0141 222 7951 or complete our online enquiry form.
Working out Income Tax up to the date of death
The deceased might have paid too much, or even too little Income Tax.
As a result, the deceased’s estate might owe tax to the government, or it could be owed a tax refund.
To make sure that the correct amount of Income Tax is paid, we contact HM Revenue & Customs (HMRC) so that they can adjust the deceased’s tax calculation.
If the deceased lived in England, Scotland or Wales, you can use the Tell Us Once service to do this. HMRC and the Department for Work and Pensions (DWP) should then contact you automatically about the deceased’s tax, benefits and entitlements.
Completing the tax return
You might need to complete a Self Assessment tax return if the deceased normally did one.
If you’ve used the Tell Us Once service, HMRC will tell you if you need to fill in a Self Assessment tax return.
If you’re not sure if the deceased regularly submitted a tax return, you should check with HMRC if they did so, and when they last submitted a return.
You’ll need to have the deceased’s National Insurance number to hand when contacting HMRC.
Paying tax on income received by the estate
Any income received after the person’s death, such as rent from a property or income from the person’s business, ‘belongs’ to their estate.
Usually, this type of income doesn’t have tax deducted before it’s received.
For this type of income, the Executor must report this to HMRC, so that the appropriate amount of tax is calculated and paid by the estate.
Income from UK savings, investments or property rent
Interest and dividends from UK savings accounts and shareholdings no longer have tax deducted from them before it’s paid out.
This means that the Executor must complete a Self Assessment tax return on behalf of the deceased, and pay the Income Tax from the estate.
If there is rental income from a property in the UK, the Executor will need to complete a tax return for the deceased’s estate.
Income from foreign savings, investments or property rent
Income from rent on a property abroad, or foreign business profit and shareholdings won’t have UK tax automatically deducted.
The Executor will need to complete a tax return for the estate on this income.
Capital Gains Tax on the estate?
The good news is that the estate doesn’t have to pay any Capital Gains Tax on the property or assets that weren’t sold (also known as ‘unrealised gains’) before the person died.
But, if the property or asset is sold during probate and its value rose since the person died, there is usually Capital Gains Tax to pay.
This tax is calculated on how much the assets increase in value since the person’s death.
Beneficiaries inherit the assets at their date of death value.
This means that when they sell or give the asset away, they will pay Capital Gains Tax on the increase in value from when the person died to when it was sold or given away.
For more detail on these Capital Gains Tax issues, please see our detailed guide here: Capital Gains Tax in Scotland – An Executor’s Perspective.
How much is Inheritance Tax and who pays it?
Inheritance Tax is a tax on the money and property, also known as the estate, of someone who’s died.
Who pays it?
Inheritance Tax is paid out of the deceased’s estate before it’s distributed to the heirs.
The Executor of the estate is normally responsible for working out how much Inheritance Tax is due. They are also responsible for ensuring that this is paid from money in the estate, or from the sale of assets.
The tax is usually paid within six months of the person’s death. If it’s not paid within six months, HMRC will start charging interest.
Contact Wilson & Fish Executry Lawyers Glasgow, Scotland
At Wilson & Fish, we can provide you with first-class guidance on changing a will after someone’s death and advise on the best course of action for your particular circumstance. Based in Glasgow, we help clients throughout Scotland including Ayrshire, Edinburgh, Aberdeen, Dundee, Paisley, East Kilbride and Stirling. Get in touch today by calling 0808 178 1520 or you can request a callback by filling out our online enquiry form.