What happens with tax if spouse dies?

Mrs_pbradley936

Hello,

at the moment my husband and I have our own pensions and if one of us dies the other gets a share of the deceased persons pension.

In addition we have a buy to let owned outright.

If one of us should die would the other get a much bigger tax bill? They would after all have a much larger income.

At the moment I pay the regular rate but my husband pays a higher rate of income tax than me.

drumtochty

Your husband will pay a bit extra on his tax on his income if he gets half of yours.


In your case as you have a smaller pension than him at the moment, you will notice a much larger tax take than you have at the moment.

Novice_investor101

Also to bear in mind that if either spouse was to pass away before age 75 then potentially any widows benefit from an annuity could also be paid tax free. I believe this is the case for annuities, not sure if it applies to what you refer to as a pension - more detail would be needed.

Brynsam

drumtochty wrote: »

Your husband will pay a bit extra on his tax on his income if he gets half of yours. 'A bit' might be understating it if the husband is a higher rate taxpayer. He'll be paying at least 40% on the extra income.


In your case as you have a smaller pension than him at the moment, you will notice a much larger tax take than you have at the moment. Again, OP will be paying tax on the whole of any extra income which results from her husband's death. As you say, it could be substantial, particularly if this takes her into a higher rate tax bracket

OP, from the wording of your question it sounds as if you both have defined benefit (aka final salary) schemes? If that's not the case, and one or both of you have defined contribution pensions and die before age 75, there is no tax to pay on the pension funds you inherit from your deceased spouse.

Brynsam

Novice_investor101 wrote: »

Also to bear in mind that if either spouse was to pass away before age 75 then potentially any widows benefit from an annuity could also be paid tax free. I believe this is the case for annuities, not sure if it applies to what you refer to as a pension - more detail would be needed.

No - if one party bought an annuity with a spouse's pension attached, the widow/er would be taxed on the spouse's pension.

Edit: please see two posts after this one! Thanks to you both.

Novice_investor101

https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/death-benefits-annuity/

Brynsam, the above says otherwise - no tax to pay if the Annuitant died before age 75, & tax paid at the widows marginal rate if the Annuitant died after age 75.
Whether this applies to the OP or not is another matter.

xylophone

https://blogs.mazars.com/letstalktax/2014/12/tax-on-widows-annuities-axed/

Above seems relevant.

JoeCrystal

xylophone wrote: »

https://blogs.mazars.com/letstalktax/2014/12/tax-on-widows-annuities-axed/

Above seems relevant.

How extraordinary! So, no matter how high the widow or widower's annuity from their spouse, it is all tax free? That almost unfair.

zagfles

JoeCrystal wrote: »

How extraordinary! So, no matter how high the widow or widower's annuity from their spouse, it is all tax free? That almost unfair.

Only if death under 75, it's in line with drawdown but AIUI scheme pensions for a surviving spouse (eg from a employer's DB scheme) are still taxed whatever age death occurred.

xylophone

The three people I have known who received pensions as widows of members of DB Schemes certainly paid tax on the income.

JoeCrystal

zagfles wrote: »

Only if death under 75, it's in line with drawdown but AIUI scheme pensions for a surviving spouse (eg from a employer's DB scheme) are still taxed whatever age death occurred.

Ah, that makes sense, thank you for clarifying it, zagfles & xylophone. I shouldn't jump the gun without reading the links more carefully.