Death and taxes
- Surviving partners may not be well informed about their deceased partner’s income.
- HMRC tends to rely on real-time information for assessable income.
- Allowances may be duplicated.
- The Revenue should rethink its approach to bereavement to ensure it obtains accurate information.
Until 2015 HMRC used two forms to establish the tax liability on death. The R27 (withdrawn in October 2014) was a request for information on the income and tax paid of the deceased up to the day of death. The P161(W) followed that asking for the new income sources of the surviving spouse, since these frequently changed when the survivor inherited the deceased’s income (this form was withdrawn in September 2015).
Using the information provided, HMRC could calculate any underpayment or overpayment of tax by the deceased and the new tax situation of the surviving spouse. If not previously a taxpayer, the survivor would become one on acquiring part or all of the deceased’s pensions and savings, while in most cases the estate of a PAYE taxpayer who died in mid-year would be entitled to a repayment because PAYE works on the assumption that the individual will live for a full tax year. In more complicated cases a self-assessment return might have been required rather than the R27. However, the same result would be achieved.
If returned correctly or with enough information, these forms allowed the affairs of the deceased at death and of the survivor to be resolved without difficulty. ...