Claiming for someone who has died

If someone close to you has died and they had car finance, compensation may still be due on their agreement, and the personal representative dealing with their estate handles it. Whether HMRC will repay any tax the lender deducted from the interest depends mainly on one thing: whether the compensation was paid before or after they died.

We know this can be one of many tasks you’re dealing with at a difficult time. This guide sets out the main points so you can work through them at your own pace.

Compensation is still possible

The FCA’s car finance claims page says its scheme covers agreements held by customers who have since died, so their beneficiaries may be able to claim. Lenders may ask for a copy of the will or the grant of probate, to make sure any compensation is paid to the right person.

If you’re not sure which lender the person used, our guide on how to find a car finance lender may help. Their paperwork and bank statements are often the best place to start.

Who deals with it

The personal representative deals with the person’s money, property and tax affairs. That’s usually the executor named in the will, or an administrator if there was no will.

GOV.UK’s guide to settling debts and taxes explains that this includes working out any Income Tax owed up to the date of death and applying for any tax refunds. If you haven’t yet told HMRC about the death, GOV.UK says to do this as soon as possible, for example through Tell Us Once.

If the compensation was paid before they died

Interest paid to the person while they were alive is their own income, in the tax year it was paid. A tax year runs from 6 April to 5 April. For the year of death, it runs from 6 April to the date they died.

If their income and allowances meant they didn’t owe tax on that interest, the tax the lender deducted may be reclaimable. The usual allowances apply:

• the Personal Allowance, if they had income below it (see our guide for non-taxpayers reclaiming car finance tax)
• the starting rate for savings, for people on low incomes
• the Personal Savings Allowance, which is £1,000 for basic-rate and £500 for higher-rate taxpayers

Claims can be made up to four years after the end of the tax year the interest was paid. The claim is made by the personal representative, in their capacity as executor or administrator, usually on an R40.

If HMRC asks for a Self Assessment return for the person’s final year, the interest goes on that return instead. GOV.UK has guidance on returns for someone who has died.

If the compensation is paid after they died

If the lender paid the compensation after the person died, the position is different.

HMRC’s own guidance (TSEM7262) says interest that wasn’t paid until after the date of death is income of the personal representatives, not the person who died. This applies even if the interest built up before death.

That means the person’s own allowances, such as their Personal Allowance and Personal Savings Allowance, can’t be used against it. The same HMRC guidance says tax deducted at source from bank or building society interest is not normally available for repayment to personal representatives.

So in many cases there will be no tax to reclaim on an R40 for compensation paid after death. It’s worth confirming with HMRC for your own situation. The interest forms part of the estate’s income during administration. GOV.UK explains when an estate’s income needs reporting to HMRC. For income from 6 April 2024, an estate with total income of £500 or less in a tax year doesn’t need to report it.

Every estate is different. If you’re unsure how the rules apply, HMRC’s bereavement and deceased estate team can help, including by webchat or post.

What to gather

• the lender’s letter showing the payment date, gross interest, tax deducted and net interest
• the date of death
• details of the person’s other income for the relevant tax years
• the will or grant of probate, or letters of administration

Next step

Check the payment date on the lender’s letter first, as that decides which rules apply. If it was paid before death, our eligibility calculator can give a rough estimate. If you’d like to ask us a question, you can contact us.