Death of a spouse

The death of a spouse or civil partner is always a difficult time. If you would like to see firstly about non-tax issues the DirectGov website is well worth a look.

It is hard sometimes to know what to do about tax when someone dies particularly as to whether any special rules apply.

We have tried to set out just some of the areas where problems can occur and the topics involved include:

Do you need to contact HMRC?

If my spouse or civil partner dies - will this affect my state pension?

Are there any special income tax rules that apply?

Are there any special capital gains tax (CGT) rules that apply?

What about inheritance tax (IHT)?

Do you need to contact HMRC?

• If you have an executor or executrix - a person appointed by the will who will be dealing with the estate for you - quite often a solicitor or family friend he or she should notify HMRC of the death.
• Alternatively if you are the executor or executrix, you should write to your spouse's or civil partner's tax office to let them know. You should also include a copy of the Grant of Probate if this is available at the time of writing.

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If my spouse or civil partner dies - will this affect my state pension?

Widows

• The state second pension scheme S2P (previously known as SERPs) is an add-on to the basic state pension and is based on the level of National Insurance contributions made.
• The rules for inheriting your husband's (or civil partner's) entitlement to this type of pension have changed and are as follows:
• If you are widowed and reach state pension age you will be entitled to 50% of the full entitlement.

Widowers

• If you were widowed after age 65, your wife was under pensionable age, and your Category A pension is not at the full rate, it may be possible to increase the pension by taking into account your wife's record of contributions. A Category A pension is based on basic pension and an add-on of additional pension. Basic pension depends on the number of years you have worked and additional pension on the amount of your National Insurance contributions.
• If your wife dies under pensionable age, you will be able to qualify for a Category B pension. This is a type of pension based on your spouse's contributions.
• You may also be eligible for this type of pension if you were both over pensionable age when your wife died, as long as you were married at the date of her death and she satisfied the conditions for a basic pension. The rate of pension you get will be the same as your wife's basic pension.
• You can also combine category A and B pensions to a maximum of the full rate of basic pension and the maximum additional pension payable at your wife's death.
• You can contact your local pension centre or social security office for more information.

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Are there any special income tax rules that apply?

• When your husband or wife or civil partner dies the tax year is divided into two parts - up to the date of death and from the date of death.

Before the date of the death

• If your spouse or civil partner normally completed a tax return or repayment claim, it will be necessary to complete one for the period to the date of death to include all income paid in the period before that date. Normally the executor will complete the return.
• Any tax due or repayable is worked out in the normal way, and a full personal allowance is available for the tax year of the death to set against income arising before the date of death.
• A full married couple's allowance (MCA) is available in the year of death. More detail on how this works is available here including how the surplus allowance can be transferred to your wife or civil partner.
• If your wife or civil partner has claimed all or part of the MCA, and their income to the date of death is insufficient to use it all, the balance can be transferred back to you.
• If your husband (or civil partner) dies leaving a surplus MCA - you can use this against your income arising in the tax year both before and after the date of death.

After the date of death

• After the date of death, the responsibility for completing tax returns or repayment claims lies with the executors or in the case of someone dying intestate, with the administrator of the estate.
• On income arising after the date of death, the rates of tax are:
  • Savings income - 20%
  • Dividends - 10%
  • Rents from property - 20%
    
• Personal allowances are not available to the executors after the date of death to set against post death income.

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Are there any special CGT rules that apply?

Before the date of death

• If you make any capital gains in the part of the tax year before you die, the full year's exemption of £10,600 for 2011/12 can be used against the gains and only any remaining balance is chargeable to CGT.
• If you make any capital losses in that period, these can be carried back to the previous three tax years, latest first, and set against gains in those years. Any repayment of CGT paid for those earlier years will be made to your estate, but any interest on the repayment will only run from the payment date for the tax year of your death.
  

After the date of death

• There is no CGT charged on any increase in the value of your assets up to the date of your death, and the person receiving the asset from your estate is treated as if they had paid the market value at the date of your death.
• The annual exemption is available for the tax year of death and the following 2 years.
• The executor or administrator of the estate will be responsible for completing any tax returns in respect of gains arising after your death.
• The rate of tax on any capital gains after the date of death will be at 18%.

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What about inheritance tax (IHT)?

• We covered IHT on a death in the inheritance tax section.
  

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