Last updated: 14 October 2026
What happens to tax when a sole trader using the cash basis dies?
The business ends on the date of death. The personal representatives (executors) must prepare final accounts up to that date and report the profits on the deceased’s final Self Assessment return. Under the cash basis, income is taxed only when received, so special rules apply to money that comes in after death. Post-cessation receipts are taxed on whoever receives them, which is usually the estate.
Steps for the executors
- Tell HMRC about the death, using Tell Us Once if available
2. Close the business down and stop any VAT registration within 30 days
3. Prepare accounts from the start of the basis period to the date of death
4. File the final Self Assessment return and pay any tax owed from the estate
5. Report any receipts after death as post-cessation income
Cash basis at cessation
| Item | Treatment |
| Sales invoiced but unpaid at death | Taxed when received, as post-cessation receipts |
| Bills paid before death | Deductible in the final accounts |
| Bills unpaid at death | Can be deducted against post-cessation receipts when paid |
| Stock on hand | Value must be included as income if sold or taken by the family |
| Equipment | Balancing allowance or charge, based on market value |
Overlap relief and basis periods
Since 2024/25, all sole traders are taxed on a tax-year basis. Any overlap relief left over from before the reform can be deducted in the final year. This often reduces tax in the year of death.
Example
Marcus, a self-employed decorator using the cash basis, dies on 30 September 2026. His final accounts run from 6 April to 30 September 2026. At his death, clients owe him £3,800. When they pay, his executors report that as post-cessation income on the estate’s tax return. The cost of materials ordered before death but paid afterwards can be set against it.
If the business carries on
If a family member takes over, the business is treated as ceasing and a new one starting. The new owner registers as self-employed and keeps their own records. Equipment passes at market value, and capital allowances usually start again for the new owner.
Inheritance tax
The business forms part of the estate. Business relief may give 100% relief on the value of a trading business, capped at £2.5 million combined with agricultural property, with 50% relief above that.
Practical issues
- Find the business records, bank statements and the online HMRC account
- Collect money owed to the business
- Deal with any VAT returns, payroll and CIS
- Close the business bank account once everything is paid
Time limits
HMRC can raise questions about the final return, usually within 12 months of filing. Executors should keep the business records until the estate is finalised and any enquiry window has closed. Where the estate is large or complex, executors can ask HMRC for clearance before distributing assets, so they are not personally liable for any tax found later.
Frequently asked questions
Who signs the final tax return?
The personal representative.
Are there penalties if the return is late?
HMRC is usually understanding, but contact them early.
Do payments on account still apply?
No, they stop after the final return.
Can losses be used?
Terminal loss relief may set losses against profits of earlier years.
Related: the cash basis scheme, cash basis changes and inheritance tax on life insurance.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with tax returns after a death. See our sole trader accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 14 October 2026. It is not personal advice, so speak to an accountant about your own situation.
