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Income Tax and CGT During Administration for SQE1

Part of our SQE1 Wills and Administration of Estates guide → View the full SQE1 Wills and Administration of Estates guide

20 Apr 2026

During the administration period - from death until the estate is fully distributed - the personal representatives are responsible for the estate's tax liabilities. SQE1 tests how income tax and capit

Income Tax and CGT During Administration

Wills and Administration of Estates > Income Tax and CGT During Administration

What is Income Tax and CGT During Administration in SQE1?

What Are Income Tax and CGT During Administration?

Candidates often lose marks on SQE1 by claiming CGT is charged on death — it is not. When a person dies, their estate may continue to generate income and the personal representatives may need to sell assets. The PRs are the taxable persons during the administration period and must account for income tax and CGT on behalf of the estate.

Key Principles for SQE1

  • Income tax: PRs' liability: PRs pay income tax at the basic rate on estate income (currently 20% for non-dividend income, 8.75% for dividend income). PRs do not have a personal allowance for the estate.
  • Income received by beneficiaries: beneficiaries with an interest in the residue receive a tax credit for the basic rate tax paid by the PRs. Higher-rate taxpayers must pay additional tax; non-taxpayers can reclaim. Knowledge of inheritance tax and personal representatives' duties complements your understanding of the broader wills and administration of estates framework.
  • CGT: base cost uplift on death: assets are revalued to market value at the date of death. There is no CGT charge on death itself.
  • CGT during administration: if PRs sell an asset for more than its death value, CGT is charged on the gain. PRs receive the annual exempt amount (AEA) for the tax year of death and the following two tax years.
  • Transfers to beneficiaries: when PRs transfer an asset to a beneficiary (rather than selling), there is no CGT charge - the beneficiary takes the asset at its probate value.
  • Losses: PRs can set capital losses against gains. Unused losses can be transferred to a legatee who receives the relevant asset.

How This Appears in SQE1 Questions

SQE1 questions test whether a CGT charge arises on death (it does not), whether the PRs or the beneficiary is liable for income tax on estate income, and how many years the PRs can claim the AEA. This is one of the most commonly tested areas in SQE1. The common trap is stating that CGT is charged on death.

Quick Example Scenario

PRs sell a property from the estate 10 months after the testator's death. The property was worth £300,000 at death and sells for £340,000. The base cost is the death value (£300,000). The gain is £40,000. The PRs can set the AEA against this gain. Any remaining gain after the AEA is taxed at the applicable CGT rate.

Common Mistakes Students Make

Stating that CGT is charged on death - it is not; assets receive a base cost uplift to market value.

  • Forgetting that PRs have an annual exempt amount for CGT - available for the year of death and the next two tax years.
  • Assuming PRs have a personal allowance for income tax - they do not.
  • Overlooking the tax credit system for beneficiaries receiving estate income.

Exam tip

No CGT charge on death — assets get a base cost uplift to death value. During administration, PRs pay Income Tax at basic rate (no personal allowance) and CGT with an annual exempt amount for the year of death plus the next two tax years. Transfers of assets to beneficiaries are not a disposal — CGT only arises on sale. Beneficiaries receive a tax credit for basic rate tax paid by the PRs; higher-rate taxpayers must pay additional tax.

Quick Summary

  • This topic combines statutory knowledge with practical application.
  • Master the key principles, understand the statutory framework, and practise applying these rules to realistic client scenarios.

Want to test this now? Try a few SQE1-style questions below before moving on.

Test Yourself

Test yourself

Quick check questions based on this article.

Question 1

Scenario

A woman dies in January 2025 leaving a valid will appointing her son as sole executor. The estate includes a portfolio of rental properties generating income of £3,500 per month, a portfolio of listed shares, and cash in a savings account. The total estate is valued at £1.4 million. The son obtains a grant of probate in March 2025 and begins administering the estate. The administration period is expected to last approximately 18 months due to the complexity of the rental portfolio. During the administration period, the rental income continues to accrue. The son also sells some of the listed shares at a gain of £35,000 to raise funds to pay Inheritance Tax and debts. The son wishes to understand the tax position during the administration period. He has no previous experience of estate administration. The woman's will leaves the residuary estate to her daughter. The son is not a beneficiary under the will.

Who is liable for Income Tax and Capital Gains Tax arising during the administration period?

Question 2

Scenario

A woman dies and her personal representatives are appointed under her valid will. The estate includes a buy-to-let property that was valued at £250,000 at the date of death for probate purposes. The personal representatives decide to sell the property to raise funds to pay debts and distribute the estate. The property is sold eight months after the date of death for £290,000. The personal representatives have not yet distributed any of the estate. The annual exempt amount for Capital Gains Tax for personal representatives in the tax year of death is £3,000. The woman had purchased the property for £180,000 ten years before her death. The estate includes other assets sufficient to pay funeral expenses and the initial IHT liability. The woman had been a keen reader of historical fiction. The personal representatives instruct a solicitor to advise on any Capital Gains Tax liability arising from the sale. No reliefs or exemptions other than the annual exempt amount are available.

What is the base cost for calculating the personal representatives' Capital Gains Tax liability on the sale of the property?

Question 3

Scenario

A woman dies in March 2024. Her estate includes a portfolio of shares that generates dividend income during the period of administration. The personal representatives receive £8,000 in dividends between the date of death and the date of distribution to the residuary beneficiary. The personal representatives also sell a commercial property that formed part of the estate, realising a capital gain of £45,000 over the probate value. The residuary beneficiary is the woman's adult son, who is a higher-rate taxpayer. The personal representatives are the woman's sister and a solicitor. The administration of the estate takes 14 months to complete. The son asks the solicitor whether he will be liable to tax on the income and gains arising during the administration period. The estate has no other sources of income.

Who is liable to income tax and capital gains tax on the dividends and the gain on the property sale during the administration period?

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