TRUSTS, ESTATES & COMPLEX PERSONAL TAX
Estates and trusts: the tax side, handled carefully
After a death, Inheritance Tax is only one part of the picture. The estate can have its own Income Tax and Capital Gains Tax while it’s being administered, and trusts have tax rules of their own. We help executors, beneficiaries and trustees understand and report them.
Led by Chris Clark, Fellow of the AAT (FMAAT) · AAT licensed practice · Reviewed on Trustpilot
WHO WE HELP
Three areas of tax, often confused
Inheritance Tax, the tax that arises while an estate is administered, and trust taxation each have their own rules, returns and deadlines.
Executors after a death
The deceased’s final tax return, and the estate’s own Income Tax and Capital Gains Tax during administration.
Beneficiaries of an estate
Understanding the estate income statements you receive and what goes on your own tax return.
Families with an Inheritance Tax question
How the nil-rate bands, exemptions and reliefs apply to an estate, including allowances from a late spouse.
People making lifetime gifts
Keeping the records executors will need, and understanding the seven-year rules.
Trustees
Trust tax returns, trustees’ Capital Gains Tax and, for some trusts, Inheritance Tax charges.
Family businesses, farms and overseas connections
Business and agricultural relief, residence and overseas assets, considered case by case.
A. INHERITANCE TAX
Inheritance Tax on death
The estate. Inheritance Tax is worked out on everything the person owned at death, less reasonable funeral costs and debts they owed. The costs of administering the estate afterwards, such as legal and probate fees, aren’t deducted.
The nil-rate bands. Each person has a nil-rate band of £325,000. A residence nil-rate band of up to £175,000 is also available when a home passes to children or grandchildren, reduced for estates over £2 million. Both are frozen until April 2031.
A late spouse or civil partner. Any part of these bands unused on the first death can usually be added on the second, so a couple may pass on up to £1 million before Inheritance Tax applies. A claim is needed.
Exemptions. Gifts to a spouse or civil partner, and to charity, are generally exempt. Tax is charged at 40% above the available bands (36% where enough is left to charity).
Timing. Tax is due six months after the end of the month of death and is usually paid before probate is granted. The full account is due within 12 months.
How we can help
Inheritance Tax figures: working out the estate, the bands and any tax due, alongside your solicitor.
Allowances from a late spouse: checking what can be transferred and the evidence needed.
Lifetime gifts: preparing the seven-year history the executors must report.
CJC provides tax and accountancy support relating to estates and trusts, subject to an agreed engagement. We don’t apply for probate, act as an executor or trustee, or prepare wills or trust deeds, and we’re happy to work alongside your solicitor.
LIFETIME GIFTS AND RELIEFS
Gifts, reliefs and the seven-year rule
What someone gave away in the seven years before death can affect the Inheritance Tax on their estate.
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Exemptions
Gifts of up to £3,000 a year, small gifts of up to £250 per person, wedding gifts and regular gifts out of surplus income can be exempt.
Gifts out of income need good records.
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Gifts to people
Most gifts to individuals are free of Inheritance Tax if the giver survives seven years.
If not, the gift uses up the nil-rate band first, and tax may be due.
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Gifts into trust
Many gifts into a trust are taxable when made if they exceed the available nil-rate band.
More tax can arise if the giver dies within seven years.
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Business and farm property
From 6 April 2026, 100% relief applies to the first £2.5 million of qualifying business and agricultural property, and 50% above that.
Some shares, such as AIM shares, qualify for 50% only. Conditions apply; we consider these case by case.
C. TRUST TAXATION
Different trusts, different tax
How a trust is taxed depends on its type, when it was set up and what the beneficiaries are entitled to. Not every trust pays the same tax, and not every trust has ten-year charges.
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The trustees decide who benefits and when. If a trust’s income is £500 or less (less where the same person has set up more than one trust), there’s usually no tax to pay; above that, discretionary trusts generally pay 45%, or 39.35% on dividends.
For Inheritance Tax, most discretionary trusts are “relevant property” trusts. They can face a charge of up to 6% every ten years and an exit charge when property leaves the trust. The amount depends on the trust’s value and history and the settlor’s earlier gifts, and is often nil where values are within the nil-rate band.
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Where a beneficiary is entitled to the trust’s income as it arises, the trustees pay tax at basic rates and the beneficiary is taxed on that income at their own rates, with credit for the tax already paid.
For Inheritance Tax, some interests in possession qualify for special treatment. These can include interests to which a beneficiary became entitled before 22 March 2006, immediate post-death interests and certain other protected interests. Where an interest qualifies, the trust property may form part of the beneficiary’s estate. Other interests may fall within the relevant property rules, depending on the trust’s terms and circumstances.
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Trustees pay Capital Gains Tax at 24% on gains above their annual exempt amount, which is generally half the amount for individuals.
When assets go into or come out of a relevant property trust, hold-over relief may be available to defer the gain, if the conditions are met and it’s claimed. A transfer can have different Capital Gains Tax and Inheritance Tax consequences, so both are checked.
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Trustees of a taxable trust usually file a Trust and Estate Tax Return by 31 January after the tax year if filing online (31 October for a paper return), and give beneficiaries statements of trust income (form R185). Most trusts must also be registered on HMRC’s Trust Registration Service and kept up to date. Ten-year and exit charges are reported to HMRC separately.
We review each trust and its records before agreeing to act. GOV.UK: trusts and taxes →
RESIDENCE, OVERSEAS ASSETS AND PENSIONS
International estates and pension funds
Since 6 April 2025, Inheritance Tax on assets outside the UK depends on long-term UK residence (broadly, UK residence in at least 10 of the previous 20 tax years), rather than domicile. UK assets are within the tax wherever the owner lived. We consider international estates case by case, alongside advisers abroad, and don’t advise on foreign law.
From 6 April 2027, most unused pension funds and death benefits will count towards the estate for Inheritance Tax. This is already legislated but not yet in force. Death-in-service benefits and dependants’ scheme pensions are excluded, and the personal representatives are responsible for reporting and paying any tax due. We can explain the tax position but don’t give pension or investment advice. See also our International Tax & UK Residence page.
B. TAX WHILE AN ESTATE IS ADMINISTERED
After a death, the estate has its own tax affairs
The final return. The deceased’s own tax return runs from 6 April to the date of death, with a full personal allowance. Any refund belongs to the estate.
Income after death. Interest, dividends and rent received by the executors are taxed on the estate, at basic rates with no personal allowance. If the estate’s taxable income is £500 or less in a tax year, there’s nothing to pay; above that, all of it is taxable. ISAs stay tax-free for a limited period while the estate is administered.
Selling assets. When executors sell, any gain is measured from the asset’s value at the date of death, with an annual exempt amount for the year of death and the next two years.
Beneficiaries. Income and capital are treated differently. Beneficiaries entitled to the estate’s income receive a statement of estate income (form R185) for their own tax affairs.
Reporting. Some estates can report to HMRC by letter at the end of the administration, broadly where the estate is under £2.5 million, the tax is under £10,000 and sales are under £500,000 in any tax year. Meeting these figures doesn’t guarantee informal reporting; other estates register and file estate tax returns.
What we’ll look at
The deceased’s final tax return and any refund
Income received after death, and in which tax year
Assets sold by the executors, using values at death
Statements of estate income for beneficiaries
Whether informal reporting or estate tax returns apply
ILLUSTRATIVE SCENARIO
Wendy Willmore: more than one tax after a death
Wendy Willmore is a fictional client. Her family’s circumstances and figures are illustrative and simplified.
Wendy and her brother Daniel are the executors of their mother Margaret’s estate. Margaret, a widow, died in May 2026, leaving her home, shares, an ISA and savings – about £1.1 million after debts – to her two children equally.
Because Margaret’s late husband had left everything to her, his unused nil-rate band and residence nil-rate band could be added to her own. Together they covered £1 million of the estate. Inheritance Tax of £40,000 was due on the rest by the end of November 2026, before probate could be granted.
That wasn’t the only tax. Margaret’s own final tax return covered April to the date of her death, and produced a small refund for the estate. After her death, the executors became responsible for tax on the interest and dividends the estate received, and on the gain when they sold her shares, measured from their value at the date of death. Her ISA stayed tax-free while the estate was being administered.
Because the executors’ tax was under £10,000 and the estate met HMRC’s other conditions, they may be able to report it by letter rather than through formal estate tax returns. Wendy and Daniel were also entitled to shares of the estate’s income. Their executors’ statements showed the income and tax attributable to each of them for their personal tax affairs.
What this shows for executors
Inheritance Tax is only one part of the picture. An estate can have separate tax obligations after someone dies.
The deceased’s final tax return and the executors’ own tax after death are separate, and income must be put in the right one.
Assets sold by executors are measured from their value at the date of death.
Beneficiaries may need information about income that arose during the administration for their own tax returns.
Wendy Willmore – at a glance (2026/27)
Estate at death £1,110,000
Funeral costs and liabilities (£10,000)
Net estate £1,100,000
Residence nil-rate bands – Margaret’s and her late husband’s (£350,000)
General nil-rate bands – Margaret’s and her late husband’s (£650,000)
Inheritance Tax at 40% on £100,000 £40,000
Executors’ Income Tax £1,207.50
Executors’ CGT £2,153.51
Inheritance Tax is charged on the estate at death. The executors’ Income Tax and CGT – £3,361.01 in total – are separate, and arise only after death.
Fictional example using 2026/27 rules in England. It assumes Margaret’s home, worth more than £350,000, passed to her children, that her late husband left everything to her, that she made only exempt lifetime gifts and held no pension funds, and that the administration was completed within the 2026/27 tax year. Not every estate that meets HMRC’s financial thresholds can report informally. Not a recommendation.
HOW CJC CAN HELP
Tax support for executors, beneficiaries and trustees
What we can help with, subject to an agreed engagement
The deceased’s final tax return
Executors’ Income Tax and Capital Gains Tax during administration, reported informally or on estate returns
Statements of estate income for beneficiaries
Inheritance Tax figures, lifetime gifts and reliefs, working with your solicitor
Trust tax returns, trustees’ Capital Gains Tax and, after review, ten-year and exit charges
Complex estates and trusts are assessed individually before we agree to act. CJC provides tax and accountancy support relating to estates and trusts, subject to an agreed engagement. We don’t apply for probate, act as an executor or trustee, or prepare wills or trust deeds, and we’re happy to work alongside your solicitor.
What to have ready
The will, and the grant of probate if issued
Values of assets and debts at the date of death
Bank, ISA and investment statements after death
Details of a late spouse’s estate, if relevant
Records of gifts in the seven years before death
For trusts: the trust deed and previous tax returns
FAQ
Questions about estates and trusts
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No. The deceased’s final tax return covers the period from 6 April to the date of death. The estate may then have its own Income Tax and Capital Gains Tax obligations during administration, which are the personal representatives’ responsibility. Income received after death may belong to the estate, but the correct treatment depends on the type of income and when it is treated as arising for tax purposes.
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Usually, if the estate’s taxable income is more than £500 in a tax year. Interest, dividends and rent are taxed at basic rates, with no personal allowance. Income from the deceased’s ISAs stays tax-free until the administration ends, the account is closed, or three years after death, whichever is first.
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No. Some estates have no tax to pay. Others can report to HMRC by letter at the end of the administration, if the estate meets HMRC’s conditions. The rest register the estate and file a Trust and Estate Tax Return for each tax year. Which applies depends on the estate’s value, the tax due and the assets sold.
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Usually, at least for assets where the tax can’t be paid by instalments. HMRC’s Direct Payment Scheme lets banks pay the tax from the deceased’s accounts. Tax on land and certain business or farm property can often be paid in instalments. Tax is due six months after the end of the month of death, and interest runs after that.
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Executors should review gifts made in the seven years before death and report those required under the Inheritance Tax rules. Records of exempt gifts are also important because they help establish which exemptions apply. Gifts into certain trusts can have separate reporting obligations when they’re made.
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Estate and trust work is quoted individually once we understand the estate or trust and its records. You can request a quote or book a Personal Tax Advisory Consultation (a 30-minute video call with Chris Clark, normally via Zoom, for £150 including VAT where applicable, with a concise written summary emailed within three working days) to talk through the position first.
Dealing with an estate or a trust?
Book a consultation to talk through the tax position, or request a quote for returns and calculations. Specialist work is individually quoted.
Related: Personal Tax · Capital Gains Tax · International Tax & UK Residence