Money and tax

This topic covers off the following themes:

• Bereavement benefits

• Bereavement Support Payment

• Guardian’s Allowance

• Tax after death

• Debt after death

Bereavement benefits

You may be entitled to financial help in the form of bereavement benefits. Bereavement Support Payments are available in some circumstances if your spouse or civil partner has died. You could be eligible for Guardian’s Allowance if you’re bringing up a child whose parents have passed away.

Bereavement Support Payment

If the spouse or civil partner died on or after the 6th of April 2017

You may be eligible for a Bereavement Support Payment if your husband, wife or civil partner died on or after the 6th of April 2017, and they paid National Insurance contributions for at least 25 weeks or died because of a work accident or disease. When your spouse or civil partner died you must have been under State Pension age and living in the UK or a country that pays bereavement benefits. You can view a list of countries that pay bereavement benefits on the government website. People in prison are unable to claim Bereavement Support Payment.

If the spouse or civil partner died before the 6th of April 2017

If your husband, wife or civil partner died before the 6th of April 2017, you may be able to claim a one-off Bereavement Payment, monthly Bereavement Allowance and/or Widowed Parent’s Allowance if you’re bringing up children.

Bereavement Payment

A one-off, tax-free payment of £2,000 which may be available if your spouse or civil partner paid enough National Insurance contributions or died because of a work accident or disease. When your spouse or civil partner died, you must have been either under State Pension age or over State Pension age and your spouse or civil partner wasn’t entitled to a State Pension based on their own National Insurance contributions.

Bereavement Payments won’t be given to those in prison. Additionally, you will not be eligible if you were divorced from the spouse or civil partner and/or living with another person as husband, wife or civil partner.

Bereavement Allowance

To be eligible for monthly Bereavement Allowance payments, you must have been 45 or over when the spouse or civil partner died, be under State Pension age, and your deceased spouse or civil partner paid National Insurance contributions or they died because of an industrial accident or disease.

Bereavement Allowance is not available to those bringing up children (Widowed Parent’s Allowance applies instead). You will also not be eligible if you remarry or form a new civil partnership, were divorced from the spouse or civil partner, live with another person as if you’re married or in a civil partnership, or were over State Pension age when the death happened. Additionally, those in prison are not entitled to Bereavement Allowance.

Bereavement Allowance was previously known as Widow’s Pension.

Widowed Parent’s Allowance (WPA)

To be eligible for Widowed Parent’s Allowance, you must be under State Pension age, entitled to Child Benefit for at least one child where your late spouse or civil partner was their parent, and your deceased spouse or civil partner paid National Insurance contributions or died because of an industrial accident or disease. You may also be able to claim Widowed Parent’s Allowance if you’re pregnant and your husband or civil partner has died.

Widowed Parent’s Allowance won’t be given to those in prison. Additionally, you will not be eligible if you remarry or form a new civil partnership, were divorced from the spouse or civil partner, live with another person as if you’re married or in a civil partnership, or were over State Pension age when the death happened.

To be considered for these bereavement benefits, you only need to apply for one as you’ll then automatically be considered for all of them.

Guardian's Allowance

If you’re bringing up a child whose parent(s) have died, you may be eligible for Guardian’s Allowance. You can get Guardian’s allowance if you’re raising someone else’s child, the child’s parents are dead, you qualify for Child Benefit, and one of the child’s parents was born in the UK (or live in the UK since the age of 16 for at least 52 weeks in any 2-year period).

There are some cases where Guardian’s Allowance will apply if there is one surviving parent, including if you don’t know where the surviving parent is, the surviving parent will be in prison for 2 years following the death of the other parent, or if the surviving parent is in hospital by court order. Additionally, if the parents weren’t married, the mother has died and the father is unknown, or if the parents were divorced/their civil partnership had dissolved and the surviving parent doesn’t have custody or isn’t maintaining the child (there must not be a court order in place saying that the surviving parent should bring up the child).

Guardian’s Allowance is a tax-free benefit paid on top of Child Benefit and the rate is £17.60 a week per child.

Tax after death

An Executor or Administrator will be required to deal with three main types of taxes when dealing with the estate administration process. These include Inheritance Tax, Income Tax and Capital Gains Tax. These must be dealt with before any inheritance can be transferred to the beneficiaries.

Income Tax

You may need to work out the deceased’s Income Tax up to the date of death to find out if they have paid the correct amount of tax. If they have paid too much, the estate may be due a tax refund or if they’ve paid too little, you pay need to pay a tax bill from the estate.

After you’ve contacted HM Revenue and Customs (HMRC) to notify them of the death, they should contact you about the personal tax of the person who died. You may be able to notify the government of the death using their ‘Tell Us Once’ service or you may have to contact HMRC directly. The section about informing others of the death provides more information on notifying the government and other organisations.

Capital Gains Tax

Capital Gains Tax is a tax on the profit when you sell or dispose of something that’s increased in value.

The estate doesn’t have to pay any Capital Gains Tax on the deceased’s property or assets that weren’t sold before they died. However, there is usually Capital Gains Tax to pay if a property or asset is sold during probate and its value increased since the person died.

Inheritance Tax

Inheritance Tax is a tax on someone’s estate when they’ve died. Their estate includes all their property, possessions and money.

Inheritance Tax only applies to certain estates and not all estates will be required to pay Inheritance Tax. There will normally be no Inheritance Tax to pay, if the value of the estate is below the £325,000 Inheritance Tax threshold or if the person who has died left everything above the £325,000 threshold to their spouse, civil partner, a charity or a community amateur sports club. It is also not applicable if the estate meets the excepted estate requirements, which include:

• Low value excepted estates (single Trust) – for a death after 1 January 2022, an IHT205 is not required if the Trust value is below £250,000. For deaths prior to 1 January 2022, the limit is £150,000

• Low value excepted estates (chargeable transfers) – for deaths after 1 January 2022, gift transfers made prior to the death that are less than £250,000 count as excepted estates. Therefore, reporting is reduced. For deaths before 1 January 2022, the limit is £150,000

• Exempt excepted estates – if the death is post 1 January 2022 and the gross value of the estate going to a spouse/civil partner is below £3 million, an IHT400 is not required. For deaths before 1 January 2022, the limit is £1 million

• Estates with Transferable Nil Rate Band – if the estate is a low value or exempt excepted estate and the gross value of the estate is at or below the Transferable Nil Rate Band (any unused amount of the Inheritance Tax threshold left by a predeceased spouse or civil partner), it qualifies as an excepted estate

There are certain circumstances where the Inheritance Tax threshold may increase. If the deceased has passed their home to their children or grandchildren, the threshold will increase to £500,000. If the estate of the first spouse or civil partner to pass away is under the threshold, any unused threshold can be added to the partner’s threshold. This means that their threshold can reach a maximum of £1 million.

Inheritance Tax is typically charged at a rate of 40% but this only applies to the part of the estate that is above the relevant Inheritance Tax threshold.

If the value of the deceased’s estate is below the threshold, you will still need to inform HM Revenue and Customs (HMRC).

Debt after death

Debts are paid out of the deceased’s estate if there are sufficient funds to cover the debts, Any debts must be settled from the estate before any money is transferred to the beneficiaries named in the Will.

Debts can include unpaid utility bills, a mortgage, credit card bills, personal loans, and tax and benefit debts.

If there are not enough funds in the estate to cover the debts and liabilities, then the estate will be classed as insolvent. Click here to find out more about dealing with insolvent estates.