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HMRC internal manual

Inheritance Tax Manual

From
HM Revenue & Customs
Updated
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Liabilities: investigating liabilities: income tax payable on the death of a partner in a business

When a partner in a business dies, the partnership has the option for income tax purposes of being assessed on what is termed a ‘cessation basis’. This gives rise to a hypothetical calculation of the partnership’s income tax liability. Part of this liability falls on the deceased. You should bear in mind that the allowable deduction is the amount of tax actually paid by the deceased’s estate, IHTA84/S162 (2). This is the position even if (as often happens) the personal representatives indemnify the other partners in respect of possible future liability.