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HMRC internal manual

Self Assessment Manual

HM Revenue & Customs
, see all updates

Records: bankruptcy: income or capital gains arising during final year of bankruptcy / sequestration

A trustee in bankruptcy (or sequestration in Scotland) is assessable on

  • Interest arising on funds held by the trustee
  • Other income arising from the debtor’s estate, such as profits arising from the debtor’s business where it is continued by the trustee
  • Capital Gains arising from the trustee’s disposal of the debtor’s assets

The trustee is liable at the lower rate of tax on Bank and Building Society Interest plus any other income from savings and distributions within S1A ICTA 1988 he / she receives. All other income is taxable at the basic rate only. Tax on chargeable gains accruing on disposals of the property is computed by reference to the bankrupt’s or debtor’s circumstances.

In the final year of the administration HMRC will accept a statement of income (together with accounts in respect of trading income) and / or computation of Capital Gains to enable the trustee to finalise a case without the issue of a formal return (provided the trustee is compliant). It does not apply if

  • You have reason to doubt the statement of income (and any accounts) and / or computation of Capital Gains

Note: In the case of untaxed income and Capital Gains the statement of income may simply be a letter giving details of the same

  • The statement of income and / or computation of Capital Gains is not accompanied by a cheque in settlement

Note: If payment is not enclosed, contact the trustee to find out why. As the trustee is trying to finalise the case there should be no undue delay in a cheque being forwarded in settlement. If the trustee will not give an undertaking to make settlement on finalising the bankruptcy / sequestration but still requests early finality of the tax position issue an in-year return

Always insist on completion of an in-year return if the trustee has a history of late payment of his / her liability arising from a bankruptcy / sequestration

A formal return for the final year must be sent in-year if the trustee requests one.

Where a statement of income and / or computation of Capital Gains in respect of the final year is accepted function CREATE RETURN CHARGE is used to enter the charge on the SA record opened for the trustee.

An Action Guide is available for the final year of bankruptcy / sequestration (SAM106071).