Do you pay tax on savings interest after someone dies? (UK, 2026)

27 August 2026 · Inherit Vault

Money doesn't stop earning just because its owner has died. Interest keeps landing in the account the whole way through probate, and someone has to tell HMRC about it. There's a £500 line that decides whether that's a five minute job or a proper bit of admin.

Two separate tax jobs, not one

The death splits the year in half. Everything the person earned up to the date they died is theirs: wages, pension, savings interest, and that's the bit where a refund often turns up. Everything the money earns from the day after the death until the estate is wound up belongs to the estate. HMRC calls that stretch the administration period, and it's taxed under completely different rules. Executors who lump the two together tend to overpay or get a letter.

The £500 rule decides everything else

For income received from 6 April 2024 onward, if the estate's income in a tax year is £500 or less, you don't need to report the estate to HMRC at all. No letter, no return, nothing. Go a pound over and the whole thing vanishes: you report all of the income, and you can't knock the £500 off first. It's a cliff edge, not an allowance. It applies for each tax year of the administration period, and you can't carry an unused amount into the next year.

£500 is smaller than it sounds

At around 4%, £500 of interest is roughly £12,500 sitting in an easy access account for a year. Estates cross that line more often than families expect, especially when probate drags on and house sale proceeds sit in the executor's account. Rent from a property that hasn't sold yet counts as well, and so do dividends on shares still held in the estate.

The estate pays a flat rate and gets no allowances

Personal representatives don't get a personal allowance, they don't get the starting rate for savings, and there's no personal savings allowance either. Bank and building society interest is taxed at 20%, rent and business profits at 20%, and dividends at 10.75% for anything received on or after 6 April 2026, up from 8.75% before that. So savings that were producing completely tax free interest for a basic rate taxpayer start losing a fifth of it the day after the death.

ISAs are the exception, and they're on a clock

An ISA keeps its tax free status after the holder dies, which surprises people who assume the wrapper dies with them. It becomes what HMRC calls a continuing account of a deceased investor. No new money can go in, but the interest and the growth stay free of income tax and capital gains tax. It ends when the executor closes it or when the administration finishes, and if neither has happened the provider closes it three years and one day after the death. Inheritance tax is untouched: the ISA still counts as part of the estate.

Selling things brings capital gains into it

If the estate sells shares, investments or property that have gone up in value since the death, there may be capital gains tax to pay on the increase. Transfer an asset straight to a beneficiary instead and the estate pays no capital gains tax on it, one reason executors are often told to hand a property over rather than sell it. If there is a gain on residential property, it usually has to be reported and paid within 60 days.

Simple estates can settle it with a letter

You can use HMRC's informal arrangements if the estate was worth under £2.5 million when the person died, the total income tax and capital gains tax is under £10,000, and you didn't sell more than £500,000 of assets in any single tax year. That means one letter to HMRC Bereavement Services at BX9 2BS at the end of the administration period, with a year by year breakdown of what the estate received. HMRC reviews it, agrees the tax, and sends back a payment reference. No self assessment return.

Once HMRC asks for a return, that option is gone

Fall outside those limits and the estate needs registering and a Trust and Estate return filing. Worth knowing: informal arrangements may not be accepted once a notice to file has been issued to the personal representatives. So work out early which route you're on, rather than after a brown envelope turns up.

Beneficiaries need form R185

When the estate pays income out to someone, the executor should give them form R185 (Estate Income). It sets out what they received and the tax already paid on it. A basic rate taxpayer usually has nothing more to pay. A higher rate taxpayer does, and they can only work that out if the form actually reaches them. Plenty of executors never send one, and the beneficiary finds out the hard way.

You can ask HMRC to confirm it's finished

Executors rarely know this one exists. HMRC will accept a return before the end of the tax year in which the administration ends, and will give written confirmation that it doesn't intend to enquire into it. The practice isn't statutory, but in most cases that confirmation closes the file, so you can distribute the rest of the estate without worrying that a query lands six months after the money's gone.

None of this is hard. It's just invisible, and it surfaces months after the death, when whoever's dealing with it has long since stopped thinking about tax. The job gets far easier if the executor can see, on one page, which accounts existed, which of them were ISAs, and roughly what each one was earning. That isn't a tax return. It's a list, and it's the thing families almost never leave behind.

Sources

GOV.UK, reporting an estate's income to HMRC, the £500 rule and informal arrangements: https://www.gov.uk/probate-estate/reporting-the-estate GOV.UK, managing and selling estate assets, rates and capital gains: https://www.gov.uk/probate-estate/managing-and-selling-assets HMRC Trusts, Settlements and Estates Manual TSEM7413, informal payment procedures and rates: https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem7413 HMRC Trusts, Settlements and Estates Manual TSEM7418, clearance at the end of the administration period: https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem7418 HMRC form R185 (Estate Income), telling beneficiaries about estate income: https://www.gov.uk/government/publications/trusts-and-estates-statement-of-income-from-estates-r185-estate-income GOV.UK, what happens to an ISA when the holder dies: https://www.gov.uk/individual-savings-accounts/if-you-die

Leave your family a map, not a mystery.

Inherit Vault is a digital inheritance vault: every account, policy, and instruction your family will need, encrypted so only you can read it, released to your executor when it genuinely matters.

Start your 14 Day Free Trial

Questions first? Read the FAQ