20.6 Income Tax and CGT During Administration
Key Takeaways
- Personal representatives are the chargeable persons for estate income and for Capital Gains Tax on sales they make during administration; a beneficiary is not taxed to Capital Gains Tax merely for inheriting, and takes the market value at death as the base cost of an asset assented in specie.
- Personal representatives are the taxable persons for estate income arising after death and have no personal allowance; they issue certificates (commonly form R185) so a beneficiary entitled to the income can settle or reclaim tax at their own rates.
- Death is not a disposal for Capital Gains Tax: the personal representatives are treated as acquiring the deceased's chargeable assets at market value at death, so lifetime gains are washed out and lifetime losses are lost.
- Because the personal representatives are taxed on disposals they make, the decision to sell an asset in the administration rather than assent it to the beneficiary changes who bears any Capital Gains Tax.
Income tax during administration
Death ends the deceased's income-tax year. Income that arises after death belongs to the administration period. Personal representatives are the taxable persons for that income. They have no personal allowance. They account for tax at the rates that apply to estates, then issue certificates (commonly on form R185) so that a beneficiary who is entitled to the income can complete their own return and pay any extra tax, or reclaim overpaid tax, at their own rates.
Distinguish income from capital. Rent from an investment flat during administration is income of the estate. The proceeds of selling that flat are capital (with Capital Gains Tax in play). Interest on an estate bank account is income. A beneficiary who receives a capital legacy is not taxed to income tax on that capital sum. Residuary beneficiaries are taxed on the income that is treated as theirs for the years of administration, not on the capital they eventually receive.
Personal representatives must register the estate with HMRC where the income requires it, keep estate income accounts, and not mix estate tax with a beneficiary's personal self-assessment. Paying a residuary beneficiary "on account of residue" without saying how much is income and how much is capital is how those accounts go wrong.
Capital Gains Tax during administration, and beneficiaries after they inherit
Death is not a disposal for Capital Gains Tax. The personal representatives are treated as acquiring the deceased's chargeable assets at market value at the date of death. That death-value is the new base cost. Any gain that accrued in the deceased's lifetime is washed out; any loss is likewise lost.
HMRC CG30700 (updated 14 September 2026) is the practice point: during the period of administration, liability for Capital Gains Tax on sales of assets from the estate falls on the personal representatives, unless they have first vested ownership in the legatees. Administration normally ends when residue has been ascertained. Until then, a sale of quoted shares or of a house that is still in the personal representatives' names is their disposal. They report it, they use whatever annual exempt amount the legislation gives personal representatives for that tax year, and they pay any tax from the estate.
A beneficiary's position is different:
- Inheriting is not a Capital Gains Tax disposal. The beneficiary does not pay Capital Gains Tax because a house, a shareholding or a painting was left to them.
- If the personal representatives assent or appropriate the asset in specie, the beneficiary takes over the death-value base cost (plus later allowable enhancement expenditure). When the beneficiary later sells, the gain is measured from that death value to the beneficiary's sale price, and the gain is taxed at the beneficiary's rates, using the beneficiary's own exemptions and reliefs (for example private residence relief if the inherited house has become the beneficiary's only or main residence).
- If the personal representatives sell and then pay cash, the beneficiary receives cash. Any gain on that sale has already been the personal representatives' gain. The beneficiary's only later Capital Gains Tax event is what they do with other assets, not the inheritance itself.
That is why the sale decision in section 20.3 and the tax analysis in this section are the same decision. Appropriating an investment property to a higher-rate beneficiary who intends to sell immediately may cost more tax than a sale by the personal representatives, or less, depending on the exemptions available to each. FLK2 will give you the facts you need; your job is to identify whose disposal it is, and what base cost they have.
Worked path: a testator bought quoted shares for £20,000. They are worth £50,000 at death. The personal representatives later sell for £58,000, expenses ignored. The estate's gain is £8,000, not £38,000. If instead they assent the holding to a daughter when it is still worth £50,000 and she sells years later for £70,000, her gain is £20,000 from the death value. She never inherits her father's stored-up gain.
Put the three taxes next to each other at the end of administration:
| Tax | Who is the taxpayer in the administration period | What the beneficiary faces later |
|---|---|---|
| Inheritance Tax | Personal representatives on the s.4 estate (and other liable persons under s.200); funded before or as the grant issues | No Inheritance Tax merely for receiving an inheritance; a failed PET they received may still be their problem if the estate cannot pay |
| Income tax | Personal representatives on estate income | Tax on income that is treated as theirs, via the R185 mechanism; not on capital |
| Capital Gains Tax | Personal representatives on disposals they make before vesting | Tax only when the beneficiary later disposes of an assented asset, using death-value as cost |
Personal representatives sell quoted shares during the administration, before residue has been ascertained and without first assenting the holding to a legatee. Who is chargeable to Capital Gains Tax on that sale, and what is the base cost?
A beneficiary receives a house by written assent and lives in it as her only home. Two years later she sells it. Which Capital Gains Tax analysis is correct?