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Bereavement and Tax – It’s changing again

Article by Tax Help for Older People

 

There can be a mountain of paperwork to deal with after a bereavement. Everyday matters like dealing with banks, council departments and utility companies can become overwhelming. Tax is the area most likely to be overlooked or relegated to the bottom of the list of things to do. This article, kindly supplied by Tax Help for Older People, explains some changes in what HMRC do following a death.

The tax affairs of the deceased have to be reconciled to the date of death, as tax may be overpaid or underpaid. And this where HM Revenue & Customs’ (HMRC) systems are changing. 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 (SA) system, there has been an improvement to allow ‘in year’ returns, speeding up the whole process. Previously, those dealing with the deceased’s affairs would probably have had to wait until after the end of the tax year in which the person died to sort out the final SA return.

 

The new process
  • The executor, personal representative (PR) or relative informs HMRC of a death – either through the ‘Tell us Once’ service or personally.
  • HMRC sends a letter to the executor, PR or – if not known – the last known address of the deceased. The letter explains the process and that a P800 tax calculation will be sent once HMRC have received the final information from the pension providers, employers, Department for Work and Pensions (state benefits), etc.
  • When the executor or PR receives the P800, it is 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 deceased’s estate.
  • The executor or PR must check the P800 tax calculation against the deceased’s records. If they cannot agree with it, they must make immediate contact with HMRC and discuss the matter.
  • The executor or PR 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 or PR will be asked to complete a self assessment tax return.
What if you do not 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 does not make sense.

As noted above, if you do not agree with the calculation, contact HMRC as soon as possible.

What about the tax affairs of the surviving spouse or civil partner?

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.

The survivor might also need to review whether you are still entitled to receive tax-free interest on savings income, if they have previously registered forms ‘R85’ to receive interest without tax taken off.

This article is by Tax Help for Older People (operated by registered charity no 1102276), offering free tax advice to older people on lower incomes. The Helpline number is 0845 601 3321 or 01308 488066.