Death and taxes are two certainties that you can be sure of. It’s a difficult subject to think about and even more difficult to deal with and it’s one of the times that tax can often go wrong. The implications are not just limited to the person who has died but can also have a significant impact on those left behind.
It is the responsibility of the person dealing with the estate to check that the information HMRC hold on the deceased is correct and as part of this, HMRC will need to be notified who the personal representative is. Once notified of the death, HMRC will check that the correct amount of tax has been paid by the deceased and will then write to the personal representative to advise if they feel any further action needs to be taken. If any tax has been under or over paid, a ‘P800 calculation’ will be sent to the personal representative. If a self-assessment tax return needs to be submitted on behalf of the deceased, HMRC will now allow this to be submitted without having to wait for the end of the tax year.
The death of a spouse, civil partner or partner can affect the tax position of the survivor. Common examples are where the survivor inherits a new income or sees changes to the amount of current income or allowances they receive, or they may acquire property or investments that generate income such as interest on savings or rent from a property.
It is not unusual for a non-taxpayer to become a taxpayer because they have inherited income. HMRC will review the new tax position of the individual, or decide if a self-assessment return is required, based on the information they receive from the DWP, pension providers and banks/building societies. It is important to make sure that HMRC has all of the correct information, so that the correct amount of tax is paid and this is the responsibility of that individual.
The full amount of Marriage Allowance, Married Couple’s Allowance and Blind Person’s Allowance is available for the year of death and are transferrable between spouses and civil partners.
Inheritance Tax can be charged on the estate of someone who has died. The estate includes money, property and possessions. If the value of your estate is below the £325,000 threshold or if you leave everything above the £325,000 threshold to your spouse, civil partner, or to a charity, there will not normally be any Inheritance Tax to pay.
If you leave your home to your children (including adopted, foster or stepchildren), or your grandchildren and your estate is not worth more than £2 million then your threshold could increase to £475,000.
Inheritance Tax is not chargeable between spouses. If you’re married or in a civil partnership then your partner or spouse will also inherit any of your unused threshold which can then total as much as £950,000, or £1 million by 2020/21.
The standard Inheritance Tax rate is 40% but is only charged on the part of your estate that’s above the threshold. Be aware that even if the estate’s value is below the threshold you’ll still need to report it to HMRC.
For further advice you can contact HMRC on their Probate or Inheritance Tax advice line on 0300 123 1072. You can find more information at www.gov.uk but if your affairs are more complex you may need to seek the help of a professional.
The tax code, if correctly issued by HMRC, enables your employer or pension provider to collect the correct amount of tax in the year. If it is wrong, HMRC will issue a tax calculation at the end of the tax year. To check your tax code is correct, you need to know what it is. It should be on your payslip, or you can call HMRC and ask. You can also find your PAYE code online by accessing your Personal Tax Account: www.gov.uk/personal-tax-account. It is your responsibility to check your code and contact HMRC if you think it is wrong.
Check you understand the numbers in each line of the letter and the HMRC notes on the back. The names of all the employers or pension providers who pay you should be listed at the bottom. The code will also list the tax free amount you are entitled to, less any adjustments.
This is the amount of tax free allowances you are entitled to less any deductions. Check that all the allowances you are entitled to are given:
Some deductions and adjustments you may have:
The total of the allowances, less deductions and adjustments, usually leaves a figure of unused allowances, which is converted into a code by removing the last digit and adding a letter.eg allowances of £12,500 become a code of 1250L.The letters at the end of the tax code are explained below:
L Entitlement to the personal tax free allowance
M 10% of your spouse’s Personal Allowance has been transferred to you (Marriage Allowance rules)
N 10% of your Personal Allowance has been transferred to your spouse (Marriage Allowance rules)
T HMRC will review the code
X HMRC will review tax paid at the end of the tax year
K Negative tax free allowance, which means no net tax free allowance is due, but rather tax is due on the excess of adjustments over allowances
C Resident in Wales (different tax bands)
S Resident in Scotland (different tax bands)
BR Income taxed at basic rate, 20%
NT No tax to pay on this income
DO Income taxed at higher rate, 40%
If you have any doubts about your code, contact either HMRC on 0300 200 3300 or, if on a low income, Tax Help for Older People, helpline number 01308 488066.
Self-assessment late filing penalties are issued when a tax return is filed after the official deadlines. For the 2017/18 tax year the deadline was 31 October 2018 if you file on paper (31 January 2019 if you file online). Filing after these dates means an immediate late filing penalty of £100.
And it doesn’t stop there! For tax returns filed over:
So, these penalties soon mount up to £1,600! You need to act quickly to stop them. The first thing you need to do, if you haven’t already, is to get your tax return completed and filed. If you now file a tax return by paper, it is already over three months late and will be incurring daily penalties. Therefore, if you are filing a tax return now, the recommended method to choose to minimise penalties is to complete it online.
If you need help to do this, either contact HMRC on 0300 200 3310, a tax adviser or a tax charity. HMRC should help you to complete your return and, in some circumstances, may even provide a face to face appointment.
Contact HMRC immediately if:
Can you appeal?
You can appeal to HMRC for the penalties to be cancelled, if you have a reasonable excuse.
The following list is an example of what HMRC consider to be a ‘reasonable excuse’. It is not exhaustive, and neither does it mean that your penalties are guaranteed to be cancelled:
If you received your penalty letter by post, use the appeal form that came with it or follow the instructions in the letter. If you received your penalty notice by email, you can either fill in form SA370 (downloadable from www.gov.uk) or write to HMRC at Self-Assessment, HM Revenue and Customs, BX9 1AS, giving your reasons for appealing.
More information can be found online by visiting: www.gov.uk/check-if-you-need-a-tax-return or by calling HMRC.
The end of winter is in sight and with spring on its way you may be thinking of a spring clean soon! But what should you keep and what can you throw away?
Savings, investments and pensions
You should keep all:
You should keep details of:
You should keep:
A penalty of up to £3,000 may be charged for each failure to keep or to preserve adequate records in support of a tax return.
Where record keeping failures come to light during the course of HMRC enquiries, they are likely to be a factor to be taken into consideration in determining the extent to which any penalties are to be abated in respect of other offences. A penalty will normally be sought only in serious cases, for example, where there has been a history of record-keeping failures or records have been destroyed deliberately to obstruct an enquiry. The amount of any penalty will depend on the nature of the offence.
The taxpayer has the right of appeal against the determination of any such penalty.
HMRC will investigate further back the more serious they think a case could be. If they suspect deliberate tax evasion, they can investigate as far back as 20 years. More commonly, investigations into careless tax returns can go back 6 years and investigations into innocent errors can go back up to four years.
So although there is no requirement to keep records longer, it is advisable to keep your paperwork for at least four years.
Gift Aid donations
Keep records if you:
If you’re claiming tax back through your Self-Assessment tax return or by asking HMRC to amend your tax code, keep records showing the date, the amount and which charities you’ve donated to.
Land, buildings and shares
For sales/donations of land, property or shares, you need to keep:
Gifts are not counted towards the value of your estate after 7 years. You should keep a list of relevant gifts made, with your will.
Well, we hope this helps, and happy organising!
Like everything in life these days, HMRC is moving towards making tax more accessible online. People who file their tax returns online may already know how to access this service. They may be aware that they can review the information entered on their tax return, make amendments and check their end of year tax bills etc. in an instant.
However, as the vast majority of people do not need to complete tax returns they would not necessarily be aware that they can access, view and manage their own personal tax information online, any time they choose. In 2015, HMRC introduced the Personal Tax Account (PTA), which allows you to view and manage your personal tax affairs online, in one safe place.
Here are some examples of the services that you can access and the information you can view and update in your PTA. You can:
Millions of people have already accessed their PTA, but for those that haven’t, it might be because they’ve never heard of it before, or don’t use computers, or may not feel confident enough going through the steps online to sign in on their own.
Before you get started, have your National Insurance number, mobile or landline number and email address to hand. As you will need to prove your identity, also make sure you have one of the following: your P60 end of year tax certificate from your employer or pension providers, or three recent pay-slips or your passport – your name exactly as it appears in your passport, your passport number and its expiry date. Also, have a pen and paper handy as you will be given an access code as well as a Government Gateway number if you haven’t previously used HMRC services online; it is a good idea to make a note of these as you progress.
When you are ready, use your usual internet search service such as Google, Bing or Yahoo to search for “Personal Tax Account” and the top option should lead you to HMRC’s website where you can begin the process to “sign up”. You can of course go direct to the website by clicking on or typing www.gov.uk/personal-tax-account. Once in, you will then be asked to answer a series of questions so that you can be identified correctly, and that will then get you through to your PTA.
If you don’t feel confident doing this on your own, Tax Help is running a project to help more people to access their Personal Tax Accounts by providing them with a written step-by-step guide, help over the phone, or a home visit with one of our volunteers. You can register for this help by calling us on 01308 488066 and we will ask you a few simple questions before and after you’ve accessed your PTA to see if our support has helped.
There is more information about the project elsewhere on this website.
You may be missing out on extra tax allowances just because you didn’t know about them. Ignorance is not always bliss! Most of you will know that we all have a tax free personal allowance of £11,850 this year, (6 April 2018 to 5 April 2019) which means that you only pay tax on the income you receive above this amount. However, there may be other allowances that can be claimed if you meet certain criteria. We would like to make you aware of three allowances that are available to so many of you but often not claimed.
That’s right, you have to ask HMRC to apply these allowances. If you don’t, you won’t get them.
If you have difficulty contacting HMRC or, if the whole idea confuses you, please contact us so that we can support or guide you to make a claim.
This allowance benefits couples who are married or in a civil partnership where at least one of the couple was born before 6 April 1935. It reduces the amount of tax you pay by up to £869 in the current tax year, which can cut your tax bill to zero.
The effect this year is the same as having an extra £4,348 tax free allowance.
HMRC will usually allocate this extra allowance to the highest earner, but you can apply to HMRC for some or all of the allowance to be transferred to your spouse using form 575(T).
You can also ask HMRC at the end of each tax year to transfer any surplus MCA if that is more beneficial.
Contact HMRC online at www.gov.uk/married-couples-allowance, by telephone on 0300 200 3300 or by post to HM Revenue and Customs. BX9 1AS.
This allowance started in the 2015/16 tax year. It allows a couple who are married or in a civil partnership to transfer a specific amount of their unused tax free allowance to their spouse or partner. So one of the couple must be a non-taxpayer and the spouse pays tax at no higher than basic rate, 20%.
The amount that can be transferred is 10% of the annual tax free allowance (currently £11,850) meaning that £1,190 can be transferred this year which will save you up to £238 in tax.
This allowance can be backdated to the 2015/16 tax year. It is important to remember that this transfer must be claimed by the spouse/partner who is giving up the allowance.
The easiest way to claim is online at www.gov.uk/marriage-allowance, by telephone on 0300 200 3300 or by post to HM Revenue and Customs. BX9 1AS.
Please note, a married couple who are old enough for the Married Couple’s Allowance cannot use the Marriage Allowance transfer as well.
This allowance is available when a tax payer is registered Severely Sight Impaired (SSI); remember, you don’t have to be completely blind. If your Ophthalmologist decides you are SSI and issues you with form CV1 you can contact your local authority to get registered with a number. You can then contact HMRC to claim the allowance, which is £2,390 for 2018/19.
If you can’t use the allowance because your income is too low you can transfer it to your spouse or civil partner, using form 575(T). Claiming BPA can save you paying £478 in tax this year.
In Scotland and Northern Ireland the process and qualifying criteria are slightly different. You need to be issued with a BP1 certificate in Scotland and an A655 in Northern Ireland.
To claim this allowance contact HMRC, online at www.gov.uk/blind-persons-allowance, by telephone on 0300 200 3300 or by post to HM Revenue and Customs. BX9 1AS.
By the time you read this, the deadline for filing your paper 2017/18 Tax Return (31st October 2018) will have passed. If you normally file on paper but for some reason have failed to do so, don’t panic - you can file online and avoid any late filing penalties.
Filing your tax return online means that you have until the 31st January 2019 to file your 2017/18 Tax Return without penalty. However, don’t leave it until the last minute as it takes at least 14 days to register for online services. Penalties start at £100, and will increase the longer you leave it - so don’t delay. The tax due for the 2017/18 tax year must be paid by 31st January 2019 whichever method of filing you use.
How do I file online?
You will need your Unique Tax Reference number (UTR); you should already have one of these if you have filed a tax return before. You will also need your National Insurance Number and/or your postcode. If this is your first time and you need a UTR, contact HMRC to register your ‘Need to file a Tax Return’. You can either complete form SA1 downloadable from www.gov.uk or call on 0300 200 3300. Once you have your UTR number you can register for online services.
Registering for online services – Visit www.gov.uk, click Money & Tax, scroll down on the right hand side of the screen until you see ‘Self-Assessment’, and click on this. Scroll down again until you see ‘Register for and file Your Self- Assessment Tax Return’, click on this and scroll down until you find 'Sign in to File your Tax Return’ and click on the green link ‘Sign In’ and follow the prompts. You will be given a User ID number and you will create a password - keep these safe. Once this stage has been completed you will be sent an activation code; follow the instructions in the accompanying letter to register the code and finally you are ready to sign in and file your Tax Return.
Tax Help is running a project to help more people file their Tax Return online. You can register for this help by calling us on 01308 488066 and we will ask you a few simple questions before and after you’ve completed your return to see if our support has helped. There is more information about the project on our website: http://www.taxvol.org.uk/online-tax-return. For those who would like help to set up their Personal Tax Account go to: http://www.taxvol.org.uk/personal-tax-account
I don’t have access to the internet - what can I do?
If you don’t have access to the internet and can’t register online you can either:
Do I have the right to appeal a penalty?
If you end up with a penalty but feel you have a valid reason for not filing your Tax Return on time you can appeal against the penalties issued to you, although you must file your Tax Return first. Reasonable excuses may include loss of a close relative or partner; loss of your tax records through theft, fire or flood and you couldn’t replace them in time; or perhaps a medical reason like being in hospital leading up to the deadline. Not receiving a paper Tax Return would not be seen as a reasonable excuse.
Tax returns are not just for the self-employed - there are many different reasons why you may need to complete a self-assessment tax return. We’ll explain here some of the reasons why you may need to file, and what to do if you are unsure.
You will need to file a tax return if you are:
or if you receive:
You may also need to file a tax return if you:
This list is not exhaustive and HMRC may want you to complete a return for other reasons. If you are still not sure if you need to file a tax return please take a look at the www.gov.uk website or you can phone HMRC on 0300 200 3310.
If HMRC have sent you a tax return or a notice to complete one, then you must fill it in and return it by the due date, which for the 2017-18 tax year is 31st October 2018 for paper returns and 31st January 2019 for online submissions. If you do not believe that you meet any of the self-assessment criteria, you can phone HMRC and ask for the tax return to be cancelled. If HMRC agrees, this will mean that you no longer have to file a return.
Not everyone has to complete a Self-Assessment tax return as most taxpayers find their income disclosures and tax payments are dealt with adequately via the automated PAYE system. However, over 10 million people have typically had some circumstance or income type requiring assessment of tax via the Self-Assessment system.
We’re now at the point where anyone needing to submit a Self-Assessment tax return for 2017/18 should be making plans for doing so. The deadline for submitting a paper Self-Assessment tax return is 31st October 2018, but there’s a later deadline of 31st January 2019 if doing it on-line. Given that, this article looks at two allowances which were new for 2017/18 – the Trading Allowance and the Property Allowance. These new allowances won’t be relevant to everyone, not even to all those with trading or property incomes, but where they apply they will be quite useful.
HMRC has said that the introduction of these allowances is intended to provide greater certainty around income tax obligations in particular circumstances. This is easiest to understand in the context of the Trading Allowance. For some years there has been debate about what might constitute “trading” (or self-employment) to the extent that the activity needs reporting to HMRC. It had been something of an urban myth that low levels of trading (or “hobbying” as some people might call an activity producing a small income) need not be disclosed to HMRC. As more and more people indulge in on-line trading via internet sites like e-bay, or sell at car boot sales, HMRC has felt that clarity around modest activity would be useful so that people wouldn’t have to decide for themselves.
The Trading Allowance establishes that trading activity in the year up to a turnover value of £1000 is now tax exempt and not reportable via Self-Assessment (but records should still be kept). This is referred to as “full relief”. Where turnover exceeds £1000, a Self-Assessment tax return will be needed and the taxpayer has the option to deduct actual allowable expenses to arrive at the profit figure for tax purposes, or deduct a flat £1000 via the Trading Allowance. In essence, therefore, anyone trading where allowable expenses are under £1000 would now sensibly deduct £1000 via the Trading Allowance to arrive at the taxable profit figure - a process referred to as “partial relief”.
The Trading Allowance clearly means that anyone trading with turnover above £1000 (remember– this is a turnover threshold, not a profit threshold) should be informing HMRC of their activity via the Self- Assessment process. This applies even if total income across all sources is low enough to mean that no tax would actually be due.
The Property Allowance follows the same basic principles but is a separate allowance for rental income. If you have rental income in the year above £1000 you must inform HMRC (usually via Self-Assessment) and you have the choice of deducting either actual allowable expenses or a flat £1000, whichever would produce the lower rental profit figure.
There are a few things to bear in mind –
It is believed that there are likely to be a large number of married couples across the UK that would be entitled to the transfer of Marriage Allowance, but are still unaware of its existence.
The Marriage Allowance transfer was first introduced in the 2015/16 tax year and should not be confused with the age related Married Couple’s Allowance which is for people born before 6th April 1935.
To be entitled to Marriage Allowance you need to be either married or in a civil partnership, where both partners are no more than basic rate taxpayers. The lower earner is able to transfer a fixed amount of 10% of their personal allowance to their spouse/civil partner which could either cover any tax that would have been due or reduce the amount of tax payable, depending on the level of their income.
For example: This tax year, Maria will only earn £5,200 from her part time job. She has no other income so has £6,650 left of her £11,850 tax free personal allowance. This spare allowance is going to waste, but applying for the Marriage Allowance transfer she can transfer £1,190 (rounded up to the next £10) of her allowance to her husband Richard, as long as his income isn’t taxable at the higher rate , i.e. over £46,350 (£43,430 if living in Scotland). This transfer could save Richard up to £238 for this tax year. If their circumstances were the same or similar over the last three years, then the claim can be backdated to 2015/16 when the allowance was first introduced.
There are a number of ways that you can claim the allowance; online by either completing the questions on the online application or from within your personal tax account. Alternatively by ringing HMRC on their helpline number, 0300 200 3300, or writing to them at H.M. Revenue and Customs, PAYE and Self-Assessment, BX9 1AS.
The contact needs to be from the person with the spare personal allowance as they are the one who will be making the transfer.
You can still make a transfer of Marriage Allowance to your spouse/civil partner and although it will mean you will pay some tax it could be of benefit to you as a couple, as your spouse/civil partner would pay a lesser amount than they would have done, overall saving you money.
A claim can still be made after one of the couple has passed away. You are able to backdate this to 2015/16 and any other subsequent years, where applicable.
For example: Mrs Roberts passed away in May 2018. For the years 2015/16, 2016/17 and 2017/18 Mrs Roberts was a taxpayer but Mr Roberts was a non-tax payer and if he had known, would have made a transfer to his wife to reduce her liability. For 2018/2019 due to the date she passed away and the income she received, Mrs Roberts was a non-taxpayer. However, Mr Roberts became a taxpayer for the first time in years.
In this case Mr Roberts can make a post-death claim to transfer 10% of his allowance for 2015/16, 2016/17 & 2017/18 to his wife, creating refunds for these years, and also claim 10% of Mrs Roberts’ allowance for 2018/2019 reducing his tax bill for this year.