Tax return and allowance for year of death

techphobe

My dad died early in the 2023-24 tax year. My mum is still alive. They both had to do tax returns - due to foreign income - which I have done for the last 5 or so years. Based on their income dad had to pay a bit of tax but as they were married decades ago they could transfer mum’s unused allowance to dad and there was never any tax to pay. 

I did their 2022-23 returns last October by paper and was expecting to do their 2023-24 returns in the coming months. But I have now received a refund for some tax for the return running from April 22 to his date of death. 

I thought that he got a full tax allowance in the year of death even if he only lived for a few weeks of it? My mum has inherited the source of his foreign income so needs a transfer of his unused allowance to prevent her having to pay income which will be more than the refund HMRC have sent. I know mum will pay tax in 2024-25 but thought their incomes would continue to be pooled this year.  Can anyone help? Or is a call to HMRC required?

eskbanker

Which transferred allowance are you referring to?

https://www.gov.uk/death-spouse-benefits-tax-pension
https://www.gov.uk/married-couples-allowance
https://www.gov.uk/marriage-allowance

p00hsticks

techphobe said:

. Based on their income dad had to pay a bit of tax but as they were married decades ago they could transfer mum’s unused allowance to dad and there was never any tax to pay. 

I assume you are referring to the Marriage Allowance 
Marriage Allowance: How it works - GOV.UK (www.gov.uk)
rather that the more archaic Married Couples allowance that only applies if at least one of your parents was born before April 5th 1935 ?
Married Couple's Allowance: Overview - GOV.UK (www.gov.uk)

If so ,then their income is not 'pooled', but rather your mother permitted your father to use 10% of her allowance.
I don't believe it would be possible to retrospectively reverse the position following your father's death, as being deceased he isn't now in a position to be able to agree to the arrangement , 

techphobe

Yes the Marriage Allowance - one parent was born before 1935.

eskbanker

techphobe said:

Yes the Marriage Allowance - one parent was born before 1935.

Isn't that 'no, it's the married couple's allowance' then?

techphobe

The request to transfer the allowance from mum to dad was part of each year’s tax return so I was thinking when I did their tax returns this year I could just do it in reverse and dad gives mum part of his tax allowance.  I take your point that he’s dead so can’t agree to it but as his executor assumed I could do it as it’s tax efficient and they had already established a pattern of doing this.  Perhaps not.

i probably need to do mum’s tax calculations which I need to do anyway and work out how much tax we are talking about and how much it would save by doing the transfer to work out if worth pursuing.

techphobe

eskbanker said:

techphobe said:

Yes the Marriage Allowance - one parent was born before 1935.

Isn't that 'no, it's the married couple's allowance' then?

Yes I have just clicked the link and realised my mistake! I was thinking it was more than a 10% transfer each year but am up to my neck in death admin, my admin, work etc

p00hsticks

techphobe said:

Yes the Marriage Allowance - one parent was born before 1935.

In that case it's the more generous Married Couples Allowance. 
Coincidentally I'm in a similar position (my dad died a few weeks ago), and so have been reading up about it.
According to the link in my previous post, the allowance should be available for the whole of the tax year in which the death occurs and you should be able to transfer it from one spouse to the other.  

techphobe

Yes according to this they can do the Married Couples Allowance claim in the year of death but not for the 2024-25.
https://www.gov.uk/death-spouse-benefits-tax-pension

i only received the refund from HMRC today so just assumed I was wrong in my previous thoughts. But now lookingmore closely at the calculation and letter it says that they have settled his affairs and already closed his self assessment record.

A quick estimate of the tax mum is likely to pay in 2023-24 is that it’s c£400 more than this refund I have just received for dad. I also think the refund is incorrect as it relates mainly to 2021 rather than being due to him passing away last year.  

What I should do is get them to reopen his self assessment if they will, then cancel the cheque, do another tax return for him and give my mum his excess allowance.  But I have his estate to distribute and there is still some admin on the foreign income to sort out, plus my mum’s admin for which I am POA so, if HMRC aren’t receptive to re-opening his self assessment record, I may just forget about it and bank the refund.

mybestattempt

Your late father's self assessment record is only 'closed' in the sense that they require nothing further, because as far as they are concerned his tax liability up to date of death has been calculated. 

HMRC don't need to be persuaded or inclined you, as executor, can within time limits amend his tax position for 2023/24, I believe you have 3 years from the date of death.

techphobe

mybestattempt said:

Your late father's self assessment record is only 'closed' in the sense that they require nothing further, because as far as they are concerned his tax liability up to date of death has been calculated. 

HMRC don't need to be persuaded or inclined you, as executor, can within time limits amend his tax position for 2023/24, I believe you have 3 years from the date of death.

Thanks. If it won’t be difficult to get them to accept and use a new tax return I may as well do it when I do mum’s.  Thanks for the info on the time limit as well.