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December 10, 2024Tax effects on death of a Spouse or Civil Partner

Introduction

Bereavement is a difficult time, particularly when this involves the death of a spouse or civil partner. There is often a plethora of arrangements to be made, including the management of the person’s financial affairs.

Ensuring that tax payments and allowances have been considered is an area which can sometimes be forgotten at this time.

To assist those who require this information, Equerry Investment Management have provided a summary and a useful government website link below.

Effect on personal allowances

When a spouse / civil partner dies his or her tax affairs up to the date of their death are dealt with on the basis of them receiving the full personal allowance and, if eligible, married couple’s allowance. The remaining spouse / civil partner obtains their usual personal allowance for the year.

Bereavement Payments

This is a tax-free lump sum payment of £2,000 that a claimant may claim following the death of a spouse or civil partner on or before 5 April 2017. To qualify for this benefit either the claimant or the deceased spouse or civil partner must not have been entitled to state retirement pension at the date of death and the deceased spouse / civil partner must have paid sufficient National Insurance contributions prior to his or her death, or his or her death must have been caused by their job.

Regular bereavement payments could also be claimed by those qualifying for deaths on or before 5 April 2017. These include a bereavement allowance of £117.10 in 2018/2019 and a widowed parent’s allowance of £117.10 in 2018/2019. Both are taxable and payable for up to 52 weeks.

Those in receipt of bereavement payments prior to 6 April 2017 continue to receive them for as long as they remain eligible.

For deaths on or after 6 April 2017, bereavement payments are replaced by a new bereavement support payment. This is worth £3,500, plus £350 a month for 18 months, for claimants with dependent children (£2,500 plus £100 a month for other claimants). To qualify, the surviving partner must be under the state pension age, and the deceased must have paid ‘sufficient’ National Insurance contributions. The bereavement support payment is not taxable and is disregarded in the calculation of other means tested benefits.

Capital gains tax

On death, regardless of who benefits under the deceased’s Will or intestacy, there is no capital gains tax payable and the assets comprised in the estate of the deceased are revalued.

Inheritance tax

Transfers on death between spouses or civil partners, both of whom are UK domiciled or deemed UK domiciled are exempt from inheritance tax (IHT).

Where the deceased was domiciled and the done (surviving) spouse or civil partner was not UK domiciled or not UK deemed domiciled then since 6 April the first £325,000 (previously £55,000) of the amount transferred on death will be exempt (see “Inheritance tax fundamentals” for more details. In addition, a full nil rate band would also be available.

Since 6 April 2013 a non-domiciled spouse or civil partner can elect to be treated as UK domiciled meaning that transfers would then be exempt for IHT purposes. However, advice should be sought prior to making such an election as worldwide assets will then be within the scope of UK IHT.

Further information

For further information on Bereavement Payments, please see the relevant GOV.UK website page here.

Important information: This article is intended for informational purposes only and no action should be taken or refrained from being taken as a consequence of it without consulting a suitably qualified and regulated person.

Equerry Investment Management is a trade name of Raymond James Investment Services Limited utilised under exclusive licence. Raymond James Investment Services Limited is a member of the London Stock Exchange and is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales No. 3779657. Registered Office: Broadwalk House, 5 Appold Street, London EC2A2AG.