Death and Income Tax

chubster1960

My sister in law's husband recently died leaving an unpaid income tax debt. The only asset he had was his car (worth less than £1K) and he has left my SIL with joint debts of over £30K with no insurance policies and no money for the funeral (and the car was bought using money from one of these debts). She is presently waiting to see if the funeral expenses can be covered by the bereavement payment, otherwise she will have to pay these. I am concerned whether or not HMRC can have a claim to the money from the car to pay the unpaid income tax despite the debts she has left her with and no income as such to support her. I don't want her to feel she can use the money if HMRC are going to come along later and require payment?

Could someone also confirm where the rules can be found that dictate the priority of the payment of debts after death?

Thanks for any help that can be provided.

le_loup

a) Funeral costs.
b) Unpaid tax.

Mikeyorks

Bear in mind - if he was still working and paying tax - that the current year calculation may well reduce the £1k debt. If that is an earlier year.
If he was paying the right amount of tax this year .... then unused personal allowances could trim the £1k by nearly half.

chubster1960

He has retired; the debt arose out of an PAYE error pre-retirement. I just wanted to know the liklehood that HMRC can claim the tax back out of the money for the car even though the estate is otherwise insolvent?

Mikeyorks

As post #2 this is the order :

Before any monies can be paid to people named in the will the executor has to pay any of the deceased's debts in a strict order of priority;

• Funeral and testamentary expenses (costs for dealing with the estate)
• Mortgage or secured loan on a property
• HM Revenue and Customs
• Department of Work and Pensions, in case there are any overpaid benefits
• Any unpaid pension contributions or wages.

John_Pierpoint

All the books of advice on "What to do when someone dies" say, "walk away" from bankrupt estates.
It is a mess but why should the widow inherit someone else's debts?
My father pulled this trick on my mother, my sister and me. Fortunately he had a mortgage protection policy that kept a roof over our heads, so we had no choice but to earn money to pay off this other debts, probably over £50K in today's money.

Does the estate of brother stand any chance of inheriting anything in the next few years?

It is just possible that the car has a snatch back clause in the sale agreement, can it be checked?

There is (I think) a procedure for transferring effective ownership (and thus insurability and liability for motoring offences) in advance of probate.
[Let us know if I am right - a car rapidly loses any value, when the tax, insurance and MOT runs out, especially if it won't be used in part exchange.]

Johnhowell

I understand that, other than houses, assets are valued for probate purposes and the value can be very low when compared to open market sale value. So a car worth £1k is probably worth only a couple of £100 for probate - HMRC may ignore the debt as the estate has no asset worth.

A friend sorted out her mothers estate and got two valuations for her jewellery - market and probate. The probate value was %10 the market value.

Good luck,
John

le_loup

You got this from a bloke down the pub, did you?

John_Pierpoint

My experience is that the probate value can be MORE than the realisable value because unlike CGT, IHT does not allow the deduction of the costs of disposal.