Income Tax Rebates and Inheritance Tax: Tribunals Confirm They Form Part of the Estate

A recent decision by the UK First-tier Tax Tribunal (FTT) has provided important clarity on how income tax rebates owed at the time of death are treated for inheritance tax (IHT) purposes—an issue that trustees, executors, and professional advisers often grapple with in estate administration.

Background: The Thomas v HMRC Case

In Thomas v HMRC (2025 UKFTT 1537 TC), the tribunal considered whether income tax rebates that had not yet been paid to a taxpayer before their death should nevertheless be treated as part of their estate for IHT purposes.

The deceased, Mrs. Eunice Thomas, died in December 2020. Prior to her death, tax returns filed in respect of her income showed that she had overpaid income tax with the result that a rebate was due, but this rebate had not yet been paid by HMRC at the date of death. Her executor originally included an estimated repayment in the inheritance tax account, but later attempted to remove it, arguing she had no enforceable right to it at the time of her death.

Key Legal Question: What Constitutes “Property”?

At the core of the appeal was the definition of “property” under the Inheritance Tax Act 1984. The executor argued that:

• Before death, the deceased had no legally enforceable right to the rebate, so it did not qualify as property;

• Hence, it should not have formed part of the estate for IHT calculations.

HMRC, on the other hand, maintained that the right to receive the rebate—despite payment being made post-death—was nevertheless a chose in action (a right to claim a debt) and therefore property capable of forming part of the estate.

Tribunal’s Decision: Rights to Rebates Are Estate Property

The FTT sided with HMRC, dismissing the executor’s appeal. The tribunal’s reasoning emphasized two key points:

1. Broad statutory definition of property: The Inheritance Tax Act’s definition of “property” is deliberately wide, encompassing rights and interests of any description—beyond tangible assets like land, cash, or shares. This broad definition includes rights to future income tax rebates, even if payment is made after death. STEP

2. Timing of the right: Although the rebate had not been paid until after death, the tribunal determined that the right to that rebate crystallised sufficiently before death to be considered part of the estate. In other words, the contingent right itself was an asset at the valuation date for inheritance tax purposes. STEP

The tribunal also made clear that precedent judgments, such as Jones v O’Brien, could not override the statutory language chosen by Parliament—particularly when those cases did not consider situations where a taxpayer dies part-way through a tax year with rebates due.

Practical Implications for Executors and Advisers

This ruling reinforces an important practical rule for estate administration in the UK:

• Income tax rebates owed at death should be included as part of the deceased’s estate when preparing the inheritance tax account (IHT400). Even if the repayment will not be received until after the date of death, the right to receive the rebate is an asset in the estate and should be valued accordingly.

For executors and trustees, this means:

• Careful review of outstanding tax positions at the date of death;

• Inclusion of all quantifiable rights to tax rebates or repayments in the IHT computation;

• Close liaison with tax advisers to ensure correct valuation and reporting to HMRC.

Failing to include such rights can lead to corrective IHT accounts and potential disputes with HMRC—at both the administrative and tribunal levels.

Why This Matters

The decision aligns with the broader principle that the taxable estate should reflect all rights and interests capable of valuation at the date of death, not just physical assets. In a more technical sense, the case underscores that:

• Rights to future payments, like tax repayments, are not excluded simply because they arise from statutory tax processes;

• The concept of property for IHT purposes is deliberately expansive; and

• Executors must be vigilant about all possible assets—even seemingly minor ones like tax rebates—to ensure accurate and compliant estate administration.

Thomas v HMRC [2025] UKFTT 1537 (TC), as reported by the Society of Trust and Estate Practitioners (STEP), Tax rebate owed to deceased forms part of taxable estate, says UK FTT, December 2025.