R3 | Technical Library | England & Wales | Guidance

Personal Insolvency: FAQs for the treatment of tax arising in personal insolvency (3 June 2025)

Many years ago, R3 had a meeting with members of HMRC about the treatment of tax arising in personal insolvency. The purpose of the meeting was to facilitate a discussion on how tax arising in personal insolvency is dealt with practically on a day-to-day basis. The agreed approach taken by the insolvency profession was then to be shared with HMRC with the aim of enabling HMRC to produce guidelines, acceptable to the insolvency profession, which would be used to ensure a uniform approach was taken to tax issues in personal insolvency (both by HMRC and insolvency practitioners and their tax advisors).

R3 is now pleased to publish a joint guidance piece with HMRC titled ‘FAQs for the treatment of tax arising in personal insolvency’. The FAQs acts as a form of guidance for members on establishing the correct tax position for an insolvent individual, including paying any outstanding tax or receiving a tax refund. It should be noted that the answers to some questions are still being considered by HMRC. The guidance will be updated when those answers are provided and members will be informed accordingly.

We would like to thank several representatives of HMRC and the following members for their time in helping to shape the FAQs: Jordan Kerry, Charles Turner, Marcus Rea, Dave Bridge, Mark Sands, Richard Dillea, Andy Nalliah, David Gregory and Annabel Grey.

This content is not intended to constitute legal advice.

Should you have any questions about the FAQs, please do not hesitate to contact the R3 Technical Team via [email protected]

FAQS

QUESTION 1 - Notification of bankruptcy

(a) It would be useful if HMRC could clarify a process to be followed to ensure that HMRC is sufficiently notified that a Bankruptcy Order has been made?

(b) Does the duty to report the Bankruptcy Order fall on the Official Receiver where they are appointed initially or on the IP if appointed in place of the OR?

HMRC - Putting to one side any statutory requirement upon IPs to notify HMRC of their appointment, in England and Wales we are informed by the Insolvency Service of Bankruptcy Orders on a regular basis but they do not inform us when a Trustee in Bankruptcy replaced the Official Receiver. We therefore want the Trustee in Bankruptcy to inform HMRC when they are appointed so we know who to correspond with when dealing with the bankrupt's tax affairs, in addition to any contact we may need to have with the bankrupt themselves. Our public notice 700/56 sets out the relevant contact points for all insolvency processes.

QUESTION 2 - Please could HMRC confirm that on the making of the Bankruptcy Order, a new Unique Taxpayer Reference (UTR) will be issued to the Debtor for post-bankruptcy returns to ensure there is no crossover of their tax affairs?

HMRC - HMRC does issue a new UTR for the Debtor for post-bankruptcy returns in the majority of cases. Our SA Manual 106030 confirms this by stating:

"Taxpayers who are bankrupt will, in the majority of cases, have two UTRs. One for the period up to the date of bankruptcy and a second for the SA record set up to deal with the period after the date of bankruptcy."

QUESTION 3 - Please could HMRC confirm what should happen to the pre-bankruptcy UTR? It would be useful if dividend payments made on pre-bankruptcy tax debts can be made to HMRC using this reference.

HMRC - The pre-bankruptcy UTR remains in place so the bankrupt can submit their SA tax return and declare their tax liability in order to form HMRC's provable debt. HMRC's provable debt consists of any tax due for tax periods prior to the Bankruptcy Order being made, and for the tax period which straddles the date of bankruptcy. This is confirmed by SA Manual 106110. Trustees in Bankruptcy should follow the 22 April 2020 (updated June 2021) guidance issued by HMRC on electronic banking for IPs making dividend payments rather than using the pre-bankruptcy UTR for the purpose of paying dividends to us.

QUESTION 4 - Is HMRC generally happy for all realisations for an Estate to be declared once the Trustee in Bankruptcy ("TiB") is preparing to close, in line with current practice, with no interest or penalties being charged on the late payment of tax. If annual returns are to be required, the number of submissions would dramatically increase, and a significant additional administrative burden would fall on both HMRC and the TiB.

HMRC - HMRC is currently working on a new process for dealing with the declaration of tax by TiB in conjunction with policy colleagues and will provide further information on this in due course.

QUESTION 5 - We understand through our meetings with the 'Making Tax Digital' ("MTD") team that they are keen for everyone to be incorporated onto the digital platform. Until the issues with dealing with tax for bankruptcy Estates can be resolved, is HMRC happy for notification of realisations to continue to be made via letter with manual calculations attached? It would be useful if HMRC could confirm its current expectations in terms of bringing Estates onto the MTD service?

HMRC - HMRC is currently working on a new process for dealing with the declaration of tax by TiBs in conjunction with policy colleagues and will provide further information on this in due course.

QUESTION 6 - Right to appeal and who HMRC communicates with about the Bankrupt's tax affairs.

a. Please could HMRC confirm that while assessments should be served on the Debtor in respect of the pre-bankruptcy position, the right to appeal vests in the TiB and the onus to agree the position then transfers back to the Debtor?

b. Please could HMRC provide guidance as to how this should be handled in practice? It would appear reasonable to have all parties involved in any agreement with an understanding that TiBs and Debtors should not disadvantage each other. Where there is no benefit to the Debtor in engaging or spending time to agree the position with HMRC, it would appear to be reasonable for HMRC to agree this position with the TiB only.

HMRC - Our internal guidance advises HMRC officers to serve HMRC assessments which form part of HMRC's provable debt on the bankrupt and to copy in the TiB where we know they have been appointed. The HMRC compliance handbook advises compliance officers at CH282100 that "any tax assessments issued for pre-bankruptcy tax periods should be issued to the individual made bankrupt and a copy should be sent to the TiB". Our Enquiry Manual at EM6230 for direct tax investigations also states that where HMRC become aware of bankruptcy proceedings we should contact the 'trustee as quickly as possible to help determine taxpayer's outstanding liabilities and collection prospects.'

We agree that the TiB alone has the right of appeal in relation to any tax periods prior to the Bankruptcy Order being made, and for the tax period which straddles the date of bankruptcy. (This was found in the decision of David McNulty v The Commissioners for HM Revenue and Customs [2012] UKUT 174(TCC)).

You have then asked who has the onus to agree the tax position for the Debtor after an appeal has been submitted. TiBs have the option to request an independent review of the assessment or to appear to a tax tribunal. Where TiBs don't request a review of appeal, HMRC will treat this as acceptance that the tax is due. If after an appeal is submitted, you want to provide further information about the tax position of the bankrupt we will take that into account and consider if our decision or assessment needs to be amended based on this information. IPs can find more guidance about this here: https://www.gov.uk/tax-appeals/decision.

In answer to your second question about how this is done in practice, we cannot provide you with guidance for how insolvency checks will be carried out in all cases where bankruptcy is involved because it will depend on the facts of the case. We will however always carry out compliance checks according to the principles outlined in our Compliance Check Factsheet 1a. We will seek to ensure the TiB is included in any correspondence regarding potential further assessments, or compliance checks, in relation to debts which could form part of HMRC's proof of debt.

R3 - A TiB is not obligated to manage a debtor's pre-bankruptcy tax affairs. The debtor remains responsible for ensuring all outstanding tax accounts and returns are lodged. A TiB is not a tax accountant for the debtor and cannot be expected to fulfil this role, as their primary duty is to the creditors, not the debtor. A TiB may wish to seek to agree the debtor's pre-bankruptcy tax affairs where it will have an impact for creditors but will need to consider their actions against the costs which may be required.

QUESTION 7 - For income tax, please can HMRC confirm that the TiB is liable to pay tax on all income receipts at 20% for non-savings and savings income and 7.5% on dividend income, and that this does not change for Scottish and Welsh debtors?

HMRC - Yes we can confirm that this is correct as per SA Manual 106040 which states "The Trustee is liable at the lower rate of tax on Bank and Building Society Interest plus any other income from savings and distributions within S1A ICTA 2007 he/she receives. All other income is taxable at the basic rate only."

Therefore, currently the 20% basic tax rate applies for income and 8.75% for dividends income.

This is also correct for Scottish and Welsh debtors.

QUESTION 8 - For Capital Gains Tax (CGT), please would HMRC confirm that the TiB has access to the full usage of the basic rate band and that the rates of tax on the sale of assets are in line with non-bankrupt scenarios.

HMRC - Yes this is correct. As you have stated, S66(1) TCGA 1992 provides that the TiB's assets and actions are deemed to be those assets held by the bankrupt and actions carried out by the bankrupt. It follows that the rate of CGT to be applied to those assets and transactions is that appropriate to the individual and the relevant year of assessment.

You have subsequently raise a question as to how the TiB might know whether the debtor has any remaining basic rate band if the debtor is not co-operating with the TiB. You suggested that in relation to this, and analogous issues where the TiB is able to use an allowance available to the debtor, then it is reasonable for IPs to assume the full allowance is available and that HMRC will challenge any such use of an allowance if that later proves to be incorrect.

QUESTION 9 - Please could HMRC advice whether it would be willing to consider a De Minis limit (of say £500) of the tax due in a bankruptcy estate where the TiB would not need to make a payment to HMRC. It is understood that there is a precedent for PAYE (£50 for 'trivial' benefits in kind), and this would save a lot of correspondence between TiBs and HMRC.

HMRC - It is not open to HMRC to administratively grant a concession to TiBs which would achieve the effect you seek. This would need to be done through legislation.

QUESTION 10 - Would HMRC confirm that some (or all) of the allowances may be used by a TiB? Historically, there was an agreement that TiBs were allowed dividend tax credits and therefore no further tax arose on dividends, it would be useful if the dividend allowance was available to ensure, where small amounts of dividends were received, a requirement to account for the tax did not apply. Confirmation of the position regarding Capital Gains Tax allowances is also sought.

HMRC - You are asking firstly if the TiB can use the income tax allowances of the bankrupt when declaring and paying income tax to HMRC and secondly whether the TiB can use the capital gains allowances of the bankrupt when declaring capital gains.

The TiB cannot use the income tax allowances of the bankrupt, including any dividends allowance, but they can use the Capital Gains Tax allowance which would be applicable to the bankrupt for the assets, transactions and years which apply.

The allowances for Capital Gains Tax transfer to the TiB because all realisable assets for the bankruptcy period transfer to the TiB on appointment as per S306 Insolvency Act 1986 so there is no risk of dual usage of the Capital Gains Tax allowances.

QUESTION 11 - Please could HMRC confirm that a TiB can claim Private Residence Relief (PRR) when selling a property in a bankruptcy?

HMRC - A TiB can claim PRR if the bankrupt themselves would have qualified for it at the time the property is sold.

QUESTION 12 - Where a Debtor moves out of the property on the bankruptcy order or shortly after, does the 18-month rule apply (likely to fall to 9 months) or would it be reasonable to consider the relief available as at the bankruptcy order? Is it reasonable for a TiB to assume that the property has been the main residence throughout ownership in the absence of any other information?

HMRC - You are asking in your first question how the final exemption period for PRR is calculated. The final period exemption applies for 9-months and a TiB can claim this relief for the last 9-months of house ownership regardless of whether the bankrupt lived in the property or not. https://www.gov.uk/tax-sell-home/let-out-part-of-home provides guidance on this matter.

Your second question is asking whether a TiB can assume a property has been the main residence of ownership in the absence of any other information.

IPs will need to understand and be ready to evidence, if requested, whether a property was the bankrupt's main residence, rather than making an assumption. They may use their powers as TiB to collect information and records from the bankrupt or third parties if necessary. If IPs are unable to gather the records necessary to do this they can submit estimated figures and note this on their return as stated in the guidance at https://www.gov.uk/capital-gains-tax/records.

You subsequently advised that it can be challenging for a TiB to understand in some cases exactly when the bankrupt continued to use the property as their private residence. You sought some further guidance on when it would be reasonable for a trustee to claim PRR, e.g. some tests which a TiB might have sufficient information to be able to consider. We are considering this question and it is answered at question 32.

You also raised whether the 9-month final exemption rule for PRR is a fixed rule or if there is scope for relaxing the rule for TiBs where they are unable to sell the property due to disputes or other factors. This is answered at question 33.

QUESTION 13 - If the Debtor is in prison, does the property continue to be the Debtor's main home?

HMRC - We cannot provide a definitive answer to this question because it depends on the circumstances of the case. It depends on the length of the period of absence from the property and if their spouse or civil partner continues to reside in the property.

You subsequently raised a similar query to your query at 12 above, i.e. you sought further guidance on when it would be reasonable for a TiB to claim PRR if the bankrupt had been in prison, e.g. some tests which a TiB might have sufficient information to be able to consider. You said bankrupts being in prison is an increasingly common occurrence. We are considering this question and have recorded it as a new issue at point 34.

QUESTION 14 - Please could HMRC confirm that any tax due on IRHP and PPI refunds should be a pre-appointment unsecured claim in the Estate?

HMRC - Tax is payable on an Interest Rate Hedging Product (IRHP) refund where it is recognised in the business profit and loss account (this is usually when it's paid by the bank). That date should be used to establish whether any tax is a provable debt or an expense of the bankruptcy.

We agree that in most circumstances tax on IRHP refunds should sit in HMRC's provable debt in bankruptcy because if the refund is received from the bank pre-bankruptcy order or in the year which straddles the bankruptcy order, HMRC will accept that the tax on the refund be added to our provable debt.

You have also asked about tax due on PPI refunds. Tax is only normally paid on the interest which has accrued on the refund. This is usually taxed at source by the bank and paid to HMRC by them so we can't see a scenario where HMRC would need to claim for this amount in the bankrupt estate.

You also asked about what TiBs are expected to do when they notice the bank hasn't deducted tax from IRHP and PPI refunds at source. Does the TiB declare this amount or inform HMRC the bank has not deducted the tax. I have recorded this as a new issue at 35.

QUESTION 15 - It would be useful if HMRC could provide some guidance for how the TiB is to calculate this claim? As it should be taxed on receipt, the tax rates may not match the pre-bankruptcy periods and therefore there could be a difference in the claim. Alternatively, if it was to be calculated in respect of the bankruptcy rates mentioned above then this could mean HMRC's claim is lower than it otherwise should have been.

HMRC - Any IHRP refund or interest on a PPI refund received by the TiB should be taxed at default basic rate i.e. 20% and the tax would form part of HMRC's provable debt if the refund or interest is received in the pre-bankruptcy period or in the year that straddles the bankruptcy order.

QUESTION 16 - As the Debtor remains responsible for his own tax affairs, a TiB is unable to enter into any claims or make any elections on behalf of the Debtor, however would HMRC consider this where it would provide an inequitable position without a claim or election being entered into, i.e. remittance basis, split year treatment, foreign loss elections, etc?

HMRC - (Updated October 2025) A trustee can make a claim or election on behalf of someone who is bankrupt and they are the trustee in bankruptcy for. ITSA claims are generally made within a return but can also be made outside of a return.

SAM106001 states that the information can be sent to the trustee where they are legally responsible for dealing with a specific taxation matter of the debtor such as loss claims and SAM106100 goes on state trustees in bankruptcy can make written claims to reduce payments on account under section 59A TMA 1970.

So although the guidance in the self assessment manual which is currently available is not very detailed, it supports the position that trustees in bankruptcy can make claims and elections on behalf of the bankrupt. I’m keen to work with you on how to improve the guidance we have on this issue and to receive any further queries you may have on how claims and elections being submitted by the trustee in bankruptcy should operate.

QUESTION 17 - Where an asset is sold by the TiB, there will be their time costs which are incurred wholly in relation to achieving a sale of the asset. Please could HMRC confirm that these are generally deductible against any gain? If HMRC agrees with this point, please can HMRC also advise on whether the amount has to be physically paid? As HMRC will appreciate, the payment of funds in an Estate follows the priority order in the Insolvency Rules 2016. If the tax is calculated before this priority order is considered (and before the amount is paid) then the tax charge will be in line with non-distressed scenarios, i.e. the amount of costs "wholly and exclusively incurred" will be deducted for these purposes. To confirm, these costs are incurred as soon as the time is charged per Rule 1.2(4) of the Insolvency (England and Wales) Rules 2016. The alternative is to consider the priority order at the same time as calculating the tax due. This would effectively mean that the tax charge will depend on the funds available. It would also mean any future realisations could reduce the earlier tax charge and so the calculations would need to be revised if the TiB was still in time to do this.

HMRC - You have asked if a TiB's time costs can be deducted against a capital gain.

To be allowable expenditure for capital gains purposes any costs have to fall within one of the categories in S38(1) TCGA 1992. This includes "incidental expenditure" but an exhaustive list of what qualifies as incidental expenditure is contained within S38(2) TCGA 1992. Any expenditure which does not fall within that list will not be deductible.

Having considered the issue we accept that generally a TiB's costs are expenditure wholly and exclusively incurred for the purposes of S38(2), the fees paid for the professional services of an accountant relate to the disposal. The position for TiBs is the same as liquidators as at CG15260. We have updated CG15260 to include TiBs in the section under "Liquidator's expenditure".

R3 - As above, a TiB may allow a deduction for fees paid (rather than time costs) that are wholly and exclusively incurred in disposing of a debtor's asset. Specifically, section 38(2) of the relevant legislation states that these deductible fees are "fees, commission or remuneration paid for the professional services of any surveyor or valuer, or auctioneer, or accountant, or agent or legal adviser." Therefore, it is important members ensure that invoices and supporting documentation clearly evidence the fees incurred wholly in relation to achieving a sale of the asset in question.

QUESTION 18 - When a Receiver is appointed over a property, there is legislation at section 26 TCGA 1992 such that the tax due on the subsequent sale by the receiver is the responsibility of the taxpayer. Please could HMRC provide an opinion of whether this applies for an Estate? Does HMRC consider that there is any difference if the Receiver is appointed prior to the bankruptcy order as opposed to after?

HMRC - S26 TCGA 1992 does apply to the TiB and the responsibility for tax due on the sale of the property post-bankruptcy order falls to the TiB. We do not consider the time of appointment of the receiver to make any difference when considering if the TiB is responsible for the tax on a disposal of property by a receiver but would be interested to hear your views on the matter if you think otherwise.

You subsequently advised that in some cases there is no recipient of the funds because there is nothing to realise (i.e. the debt to the mortgagee exceeds the value of the asset). I have recorded this as a new issue at 36.

QUESTION 19 - Under the insolvency legislation starting at section 315 Insolvency Act 1985, there is a right for a TiB to disclaim onerous assets, which are defined as:

any unprofitable contract, and
any other property comprised in the bankrupt's Estate which is unsaleable or not readily saleable or is such that it may give rise to a liability to pay money or perform any other onerous act.

An example of this is a property which is mortgaged so there will be no realisation for the Estate, but there will be a tax charge on its sale. This legislation was created to ensure that the Estate achieves the best position for all the creditors and minimises expenses arising. The legislation states that as a result of disclaiming an asset, any person who incurs a loss as a result of the action will be able to make a claim in the Estate per section 315(5). It would therefore follow that the tax liability on any subsequent sale would not be an expense of the Estate and instead HMRC should make a pre-appointment unsecured claim in the Estate for the loss of tax. Please could HMRC confirm that it agrees with this treatment.

HMRC - We agree with the treatment you have described in this section and that we would look to tax the person who sold the property after it was disclaimed or make a claim in the bankrupt Estate.

QUESTION 20 - Where the Debtor has carried forward losses in the pre-appointment period (i.e. capital losses, trading losses, etc), it would appear that these should be an asset of the Estate and therefore are available to be used by the TiB. However, where the TiB did not use the entirety of these losses, the "asset" could b used to raise money for the Estate's creditors and sold back to the Debtor (assuming all other requirements, i.e. TOGC issues, were met). This generally occurs for any other assets which the TiB cannot realise as part of the Estate, but the Debtor would like to retain. The Estate is open in perpetuity and therefore without a transfer back to the Debtor, these assets would remain in the Estate forever. Please could HMRC provide guidance on whether they believe losses vest in the TiB and whether surplus losses can be transferred back to the Debtor.

HMRC - As described in our answer to question 8, the actions of the TiB are treated as the actions of the bankrupt for Capital Gains Tax. This means that the TIB can claim carried forward losses and surplus losses can be transferred back to the Debtor.

QUESTION 21 - HMRC has previously issued guidance on FNs, and we have requested clarity as to how APNs and FNs operate in relation to a bankruptcy or voluntary arrangement, for example, could an APN be used as the basis for a bankruptcy petition being issued. We look forward to receiving this.

HMRC - We understand that a lot has happened with this since you originally wrote your letter. We agreed that we would address any issues of this nature which arise on a case-by-case basis and so do not seek to provide a detailed answer here.

QUESTION 22 - HMRC's trust manuals (TSEM6280) state that "HMRC will not regard the TiB as a trustee of a settlement for income tax purposes, or for Capital Gains Tax purposes". Please can HMRC confirm that a TiB is therefore not required to register the bankruptcy estate with HMRC despite the requirement to register other estates (TSEM1402).

HMRC - We can confirm that TiBs are not required to register the bankruptcy estate with HMRC.

QUESTION 23 - Where a debtor dies either before or during bankruptcy, please can HMRC confirm that any assets sold after death are subject to a Capital Gains Tax uplift to the market value at death? Also, it is assumed that the TiB does not become responsible for completion of the IHT return or any other aspects of the deceased estate (such as registering the estate with HMRC)

HMRC - Yes, we can confirm that any assets sold after death by the TiB are subject to a Capital Gains Tax uplift to the market value after death and that the trustee can calculate the Capital Gains Tax based on the new uplifted market rate.

You are correct that it is not the responsibility of the TiB to file Inheritance Tax returns or to deal with any other interactions of the deceased estate such as registering it with HMRC. Those duties fall to the estate executor.

QUESTION 24 - In Scottish law, all partnerships are separate legal entities. For tax purposes, please can HMRC confirm that there should be no changes between English partnerships, i.e. LLPs become opaque (per 59(4a) TCGA 1992) and LP's and 1890 partnerships remain transparent for tax purposes.

HMRC - We can confirm that where S59A(4a) TCGA 1992 applies to an LLP because a liquidator is appointed or, if earlier, there is a winding up order made by the court, or on a corresponding event under the law of a country or territory outside of the UK, the LLP ceases to be treated as transparent for Capital Gains Tax purposes but will be treated as a body corporate. Other partnerships remain transparent for Capital Gains Tax purposes in the event of insolvency.

QUESTION 25 - Please could HMRC confirm that the Debtor rather than the Supervisor remains responsible for any tax liabilities which arise? There are rarely any significant balances in an IVA for interest to be earned, however realisations of assets do occur which could result in tax charges.

HMRC - We can confirm that the debtor remains responsible for income tax, national insurance contributions and VAT payable after the voluntary arrangement comes into effect. Capital Gains Tax on the sale of assets which are subject to the voluntary arrangement are taxed by the supervisor and should be paid as an expense of the arrangement in accordance with the terms of the arrangement and declared on the debtor's SA return as per SA Manual 106120.

R3 - It is important for R3 members to check that the terms and conditions of the voluntary arrangement include a clause about tax liabilities arising on the sale or other realisation of any asset subject to the arrangement. The clause should enable the supervisor to discharge the tax liabilities out of the sale proceeds of the asset in question, in so far as those proceeds are sufficient.

QUESTION 26 - In some cases, HMRC's decision in respect of an IVA could determine whether it is agreed, therefore please could HMRC confirm its understanding of the process to be followed to notify HMRC of the arrangement and to ensure HMRC's claim is correctly submitted.

HMRC - Guidance on Individual Voluntary Arrangements has been issued by HMRC to answer this question.

QUESTION 27 - We have stated above that HMRC appear to only consider an IVA where it receives 100% of the tax due, even if it was over a longer period. Please could HMRC clarify whether this is its position? Also, please could HMRC confirm the best process to follow in order to seek HMRC's approval to an arrangement.

HMRC - Please refer to answer 26.

QUESTION 28 - Assuming the understanding of HMRC's policy is correct, it is assumed that any additional liabilities arising, such as a challenge against a potential tax avoidance scheme, will need to be paid in full in order to avoid HMRC potentially seeking a full bankruptcy appointment?

HMRC - Please refer to answer 26.

QUESTION 29 - Please could HMRC confirm whether the Debtor remains responsible for any tax liabilities that arise as a result of the trustee's actions in a Scottish trust deed and the tax treatment follows that of an IVA?

HMRC - Unlike IVAs, tax is payable on asset disposals by the trustee instead of the debtor in Protected Trust Deeds. This is because unlike in IVAs all the debtor's estate is conveyed to the Trustee as stated in S267 Bankruptcy (Scotland) Act 2016.

The AiB guidance on outlays states income tax and inheritance tax liabilities are payable by the trustee from their own or PTD funds.

QUESTION 30 - HMRC to look into improved guidance for compliance officers so they contact the TiB soon after their appointment about open compliance checks against the bankrupt and always copy in the TiB where a tax assessment is issued.

HMRC - The HMRC compliance handbook has been updated to state that "Where an individual is made bankrupt under these insolvency procedures, any tax assessments issued for pre-bankruptcy tax periods should be issued to the individual made bankrupt and a copy should be sent to the trustee in bankruptcy to inform them of the correct HMRC claim in bankruptcy."

QUESTION 31 - HMRC to ask tax policy for guidance and reassurance for what happens when the TiB uses the CGT allowance, and the bankrupt also uses the allowance. What is expected of the TiB in this situation?

HMRC - Trustees in bankruptcy should complete the tax return on the basis that appears most appropriate and must include specific details about the points on which they are uncertain in the return.

We would expect trustees in bankruptcy to make enquiries with the bankrupt and whether they have personally used the CGT allowance. We understand however that this is not possible in all circumstances where for example the bankrupt is refusing to co-operate with the bankruptcy process.

If you are unable to determine if the bankrupt has made use of the CGT allowance, or for how much, you should note this on the return.

If the return is later enquired into and shown to be incorrect, we will then understand how the trustee has decided to use the CGT allowance and it is unlikely they will be penalised as long as the trustee acted competently, in good faith, and all relevant facts were disclosed at the time.

QUESTION 32 - HMRC to look into whether guidance can be issued to trustees in bankruptcy on what evidence HMRC will accept when trustees claim Private Residence Relief.

HMRC - The CG Manual already provides guidance on some of the factual evidence HMRC consider when looking at PRR (at CG64545). We cannot offer further bespoke guidance on this subject for trustees in bankruptcy because each different claim and whether it should be accepted or not will depend on the facts of the claim.

QUESTION 33 - HMRC to look into whether 9-month final exemption rule for Private Residence Relief is a fixed rule or if there is scope for relaxing the rule for trustees in bankruptcy where they are unable to sell the property due to disputes or other factors.

HMRC - There is no scope to relax the rules. Final period relief is fixed at 9-months by S225E TCGA and the legislation provides HMRC with no discretion in the matter.

QUESTION 34 - What are trustees in bankruptcy expected to do when they notice the bank hasn't deducted tax from IRHP and PPI refunds at source? Does the trustee in bankruptcy declare this amount or inform HMRC the bank has not deducted the tax?

HMRC - (Updated October 2025) In these circumstances the trustee in bankruptcy should declare the amount due and pay it to HMRC. You should note however that for Interest Rate Hedging Products, the bank does not deduct tax in all circumstances on IRHP products and only on any interest element so its possible a IRHP refund payment has been made to a trustee in bankruptcy without tax being charged on the full amount.

QUESTION 35 - Where a receiver sells assets and there is no recipient of funds from the sale who is taxable for the expense?

HMRC - The long-standing effect of S26(2) TCGA is that tax due on realisations in these circumstances is an expense of the bankruptcy, payable in England and Wales per rule 10.149(q) of Insolvency (England and Wales) Rules 2016 ("IR16"). HMRC expects trustees to pay expenses in accordance with the statutory priority order, which includes paying any CGT due ahead of their own remuneration under 10.149(r) of IR16.

QUESTION 36 - Is there any scope for leniency on the application of late filing penalties for SA returns submitted by trustees in bankruptcy?

HMRC - There is no specific scope for leniency solely for TiBs on the submission of late SA returns. TiBs can appeal any late filing penalty and provide details of any reasonable excuse they have for filing the SA return late and this will be considered by HMRC.

The system for charging penalties for late filing of self-assessment returns is due to change from 06 April 2026 and you can find out more details about that on our penalties for late submission site.

This content is not intended to constitute legal advice.

Should you have any questions about the FAQs, please do not hesitate to contact the R3 Technical Team via [email protected]

03 June 2025

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