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HMRC internal manual

Employment Income Manual

HM Revenue & Customs
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Employment income: basis of assessment for general earnings: earnings received after the death of an employee or office holder

Section 13(4) and (5) ITEPA 2003

When an employee or office holder dies, earnings received (or, if the employee was subject to the special rule for certain foreign earnings, received in the United Kingdom) after the date of death are assessable on the personal representatives in the same way as if they had been received by the employee or office holder (see generally EIM42201). The earnings will, of course, all have been earned in periods before the date of death and in many cases, adopting the statutory position could place an additional burden upon the personal representatives and family of the deceased but may not result in materially different overall tax liability. Sensible administrative procedures should be used in this type of case and a review should be undertaken to determine the assessing basis which is most financially beneficial to the personal representative. Note. The strict basis of assessment should always be applied when requested, and follow EIM42390.

When no request to apply the strict basis has been received and it is beneficial not to apply the strict basis you should take the pay and tax shown on the deceased’s P45 as received in the period before the date of death (see generally EIM74101 for taxation of all pensions and annuities). Furthermore, when the death occurs close to the end of the tax year, a payment received in the year following death should also be treated in the way most beneficial to the estate. This is particularly relevant if the deceased was not liable to tax up to the date of death. Note: State pension is treated as accrued income and is treat as income received prior to the date of death irrespective whether it is paid after.

The tax chargeable on the personal representatives is a debt due from and payable out of the deceased’s estate.

As regards:

If it is contended that earnings cannot be attributed to any particular period during the lifetime of the deceased employee or office holder, see EIM40005.

So it is the place where duties were performed and the residence and ordinary residence status of the employee when the remuneration was earned that counts. The residence position of the personal representatives at the time the earnings are received (or, where the special rules for certain foreign earnings apply, received in the United Kingdom) is irrelevant.

In cases where an employee or office holder has died the employer will follow the instructions at page 12 of the Employer’s Further Guide to PAYE. By following those instructions the employer will account for tax in the following way:

  • when payments are made in a tax year following that in which the employee died the employer will prepare a new deductions working sheet and will use code OT Week1/Month1.