Income, Inheritance & Capital Gains Tax | Footprints Bereavement Services

Information on Income, Inheritance & Capital Gains Tax

We recommend obtaining professional advice and guidance and details of local companies can be found in the Legal & Financial section of the Funeral Services Directory. The following is intended as a general guide only.

There are three main taxes that you may have to deal with when someone close to you dies: Income, Inheritance, Capital Gains Tax. The payment for such taxes will come from the money, property and possessions of the deceased known as the estate and any refunds due by HMRC or similar organisations will be paid into the estate.

Income Tax

The person who has died may have paid too much or too little tax and HM Revenue & Customs (HMRC) will, when notified of the death, calculate their tax status with any monies due paid from or into the estate of the deceased.

Inheritance Tax

Only a small number of estates have to pay Inheritance Tax. Currently the Inheritance Tax threshold is £325,000 so broadly speaking, only estates worth more than that are liable to pay the tax. If you are married or in a civil partnership, your estate can be worth up to £650,000 before Inheritance Tax is payable.

Capital Gains Tax (CGT)

The estate of the person who died may be liable to CGT on things they owned that they sold, gave away or transferred wherever in the world they were located. CGT is a tax on the profits or gains that they made on the disposal of these assets.

Value the Estate

If you are responsible for managing someone’s affairs after they’ve died, valuing their estate is one of the first things you need to do. You need to start with everything they owned at the time of their death. This includes property, possessions and money, minus everything they owed, such as their mortgage, loans and credit card bills.

You will need to work out the value of the estate for two reasons:

To calculate how much Inheritance Tax, if any, needs to be paid
To arrange for the distribution of the estate according to the Will (or the intestacy rules if there was no Will), see Debt, Wills & Probate for further information.

The value of the estate for tax purposes and the value for distribution purposes may not be the same.

Not sure if land or property was jointly owned?

If you don’t have this information to hand you can get information about the ownership of properties and land in:

England and Wales – download a copy of the ‘title register’ from the Land Registry for a small fee
Scotland – get a copy of the ‘title register’ from Registers of Scotland
Northern Ireland – get a copy of the ‘title register’ from the Department of Finance and Personnel

The Land Registry will show the owners of registered property in England and Wales. The papers that were signed when the property was bought will normally set out whether it is owned as joint tenants or in separate percentage shares as tenants in common if there are two or more names on the title.

HMRC provide a guide to completing your Inheritance Tax account which may help.

Valuing jointly owned assets

Before you can work out the value of the deceased’s share of a jointly owned asset, you’ll have to find out how it was owned. Assets such as a car, house or piece of land may have been owned with someone else. They might have owned it:

Joint Bank Accounts

Joint bank accounts are nearly always held as ‘joint tenants’ so the value to include in the estate for the purposes of calculating the tax payable on the estate is usually the amount in the account divided by the number of owners.

Joint accounts will pass automatically to the survivor, regardless of:

unequal ownership
what the will says
what the intestacy rules say

Other joint assets

If the deceased person owned any other assets jointly, you’ll have to make enquiries to:

establish if the asset was held
work out what proportion should be included in the estate

However, for unmarried couples and other combinations of joint account holders, a greater degree of scrutiny will be required as to how much tax is due and who is liable for that tax.

Joint Tenants

As ‘joint tenants’, in which case:
• you have equal rights to the whole property
• the property automatically goes to the other owners if you die
• you can’t pass on your ownership of the property in your Will

Tenants in Common

‘tenants in common’, in which case:
• you can own different shares of the property
• the property doesn’t automatically go to the other owners if you die
• you can pass on your share of the property in your Will or through intestacy if there is no Will

Valuing Individual Assets

You need to know the market value – meaning the realistic selling price – of all of the deceased’s assets at the time of their death. A realistic price is likely to be the value the item might fetch if sold at auction or through the local paper.

For some assets, such as property or land, you should get a professional valuation. HMRC recommends getting items over £500 professionally valued. They can challenge valuations if they disagree with them.

Gifts or Donations

HM Revenue & Customs need to know about certain gifts that the deceased may have made in the seven years before their death. This could also include information or circumstances that may affect the tax position of their estate, such as any continuing benefit they were receiving from a trust.

Debt

Any outstanding debts or bills that were owed by the deceased at the date of his death, such as a credit card bill or a loan, must be taken into account when you are valuing their estate. You can deduct the reasonable funeral bill as well.

For any debts owed jointly, such as a joint mortgage, joint credit card or joint loan, you should use the deceased’s share of the amount outstanding. See Debts, Probate & Wills for further details.

Further help and information

There are various tax forms to complete for each of the above, differing in complexity depending on the person’s financial situation.

The GOV.UK website have further information on all of the above or the Deceased Estate Helpline on 0300 123 1072 can help.

If HMRC can’t help and you are having difficulties with tax and on a low-income there are several organisations who can provide free tax advice and assistance:

TaxAid Tel: 0345 120 3779 (Monday to Friday 10am to 12noon)
Tax Help For Older People Tel: 01308 488066 / 0845 6013321