Thanks to Alex Stewart of Tax Help for Older People for this update on bereavement and tax.

Bereavement and Tax – it’s changing again

There can be a mountain of paperwork to deal with after a bereavement, and everyday matters like dealing with banks, council departments and utility companies can become overwhelming. One area that needs attention after most bereavements is tax. It is also the area most likely to be overlooked or put to the bottom of the list of things to do.

The tax affairs of the person who’s died have to be sorted to the date of death to check tax hasn’t been overpaid or underpaid.

Changes in bereavement and tax

From October 2014 form R27 (Reclaiming tax or paying tax when someone dies) is being replaced by personalised letters and an automatically produced tax calculation (P800). For those in the self assessment system the process has been improved to speed up the whole process.

The new process

• Identify the Executor (we’ll use that as shorthand for the personal representative, lawyer or relative/friend in charge of sorting affairs).
• The Executor informs HMRC of the death – ideally through the handy government ‘Tell us Once’ service.
• HMRC sends a letter to the Executor. The letter explains the process and that a P800 tax calculation will be sent once HMRC has received the final information from the pension providers, employers, DWP etc.
• The Executor receives the P800. Mostly, it’s likely that there will be an overpayment and a refund is due – but sometimes there is an underpayment that will need to be paid out of the Estate.
• The Executor checks the P800 tax calculation against the tax records of the person who has died. Contact HMRC to discuss any queries.
• The Executor should receive the refund or a payment slip about a month later.
• Those in self-assessment will receive a more tailored service with letters to match their individual circumstances. In most cases the Executor will be asked to complete a self-assessment tax return.

What if you don’t agree with the P800 tax calculation?

It is not unusual to see errors in calculations and it really is important to check them over carefully.

• Check against the final statements from pension providers, employers, DWP, etc.
• Check income from savings, as the P800 may show the previous year’s savings income.
• Check if there are any adjustments listed and that they are real, as they often appear for no reason.
• Question anything that doesn’t make sense.

Tax affairs of a surviving spouse

In most cases it is important to review the survivor’s tax situation as this usually changes. Form P161(W) is used to notify HMRC of any changes to their income. This form is mentioned in the new letters but you have to ask for a copy. It is not unusual for a non-taxpayer to become a taxpayer because they have inherited income. The form asks for information on income after the date of death and is a snap shot in time so it is best completed once all the changes have settled down. HMRC then review the tax codes or decide if a self assessment return is required.

Free tax advice

Tax Help for Older People offers free tax advice to older people on lower incomes. The Helpline number is 0845 601 3321 or 01308 488066 or email Alex Stewart. Alex is happy to visit groups and give talks.