Reviewing the Position of the Surviving Partner
Following the death of the deceased the surviving spouse or partner will often be the only adult remaining in the property. This will usually entitle them to a 25% reduction in Council Tax. Contact the local authority responsible for collection of the Council Tax.
After the death of a spouse or civil partner the tax affairs of the surviving party should always be reviewed as unexpected tax demands are never welcome. Consideration should be given to the following:
- Were they previously registered to receive investment income gross as their income was below the tax thresholds? Following probate the receipt of funds from the deceased may mean that they are no longer eligible for income to be paid gross and the financial institutions will need to be notified of this.
- Is full advantage being taken of tax free investments such as ISAs?
- If the surviving party is in receipt of a pension following the death of the deceased is the correct PAYE code being applied to the pension payments? This is unlikely to happen automatically and if it does, there is no guarantee that the code is correct. You may have to contact HMRC – this can be done by telephone and a new code will be issued within a few days. Failure to do this can result in unwelcome underpayments of tax.
- Is the surviving party now paying tax at the higher rates which could be mitigated by a review of their investments? If all of the investment income is not needed then it may be a simple case of switching income yielding assets into capital growth assets.
- Is the estate of the surviving spouse or civil partner in excess of the Inheritance Tax threshold (don’t forget the unused threshold from the deceased referred to in an earlier section)? If it is, some planning may be done to avoid the excess being taxed at 40%. Consider the annual gifts exemptions and gifts out of income as simple measures. Gifts during lifetime may also be relevant but may attract Inheritance Tax if the donor does not survive 7 years.
It may be beneficial to speak to an accountant and take specialist advice in these areas. Find a local accountant.
For ISA’s it may be possible, if certain conditions are met, for a surviving spouse or civil partner to transfer the ISA into their own name using an additional ISA allowance equivalent to the value of the deceased’s ISA at the date of their death. Any such additional allowance is known as “Additional Personal Subscription” (APS) and can be used to transfer the ISA into the name of the surviving spouse or civil partner and retain the tax-exempt status. Any such APS is in addition to the normal annual allowance (currently £20,000). It is also possible for a stocks and shares ISA to be transferred to a surviving spouse or civil partner or for the stocks and shares to be sold and the cash funds to be invested in a new cash ISA.
This APS is available to the surviving spouse or civil partner even if they do not inherit the deceased’s ISA themselves – however, they would obviously have to use their own resources to make an ISA investment larger than the normal annual allowance under such circumstances. Where more than one ISA was held by the deceased the value of the ISA’s can be aggregated to establish the APS figure. In order to qualify for the APS the deceased and their surviving spouse or civil partner must have been living together prior to the death, unless one of them was in residential care.
Normally when a person dies the tax-exempt status of their ISA ceases and any income becomes taxable. If APS is available it can be claimed up to 3 years from the date of death or 180 days after the estate has been administered, if longer. Therefore, when you advise the ISA company of the death of the deceased it is worth enquiring if they are willing to accept APS transfers. Since not all ISA providers will do this, you may need to consider an alternative provider.
Power of attorney
You may wish to consider whether the spouse or partner of the deceased should consider granting any powers of attorney. It may be that they have already granted an Enduring Power of Attorney (EPA) prior to 2007, in which case it makes sense to know its whereabouts and details. In 2007 Enduring Powers of Attorney were replaced by Lasting Powers of Attorney. However an EPA set up before October 2007 will still be valid
Powers of attorney – there are two types
- an Ordinary Power of Attorney which gives someone the power to make decisions and take actions on your behalf whilst you still have mental capacity. The power under this type can be limited or restricted to those areas that you choose.
- A Lasting Power of Attorney (LPA) which is still valid after the person giving it loses their mental capacity. Great care therefore needs to be exercised when giving an LPA.
There are two types of LPA:
- Property and Financial Affairs LPA – this is generally used to give the attorney (the person appointed under the LPA) the power to make decisions on such matters as paying bills, managing bank accounts and handling property matters.
- Personal Welfare LPA – this can only be used once the person granting the LPA becomes mentally incapable. It is used to cover healthcare and personal welfare and allows the attorney to make decisions on where the donor lives and what medical treatment they receive.
It is worth using a solicitor to help set up an LPA. The LPA must be registered with the Office of the Public Guardian before it can be used. If you wish to do it yourself further information and the forms can be downloaded here.
Creating a log of useful information
If the first spouse or civil partner passed part or all of their estate to the surviving spouse then there is a good chance that on the death of the second spouse or civil partner there will be additional allowances available to the estate. As noted in the Tax tab on this site, the completion of form IHT402 can be difficult without all of the information and copies of the death certificate, will and grant of probate for the first spouse or civil partner. In addition, it may be more difficult to find dates and venues of the marriage or civil partnership. It therefore makes sense to prepare such information and keep it safe together with the will of the surviving spouse or civil partner and to let relatives and/or executors know that it has been done and where it can be found. For further information see the blogs.