Taxes in Year of Death

Flower for Funeral

It’s so exciting that the long weekend is here. It’s a la la la long weekend. The song “It’s Friday Yeah” is popping into my head. Even Timmy the cat is in good spirits here. Although Brian Cody’s replacement in the Kilkenny hot seat is a worry for him, given his love for The Cats. He knows my preference is for the return of the king. And with Michael Fennelly leaving Offaly could there be a role for him? That would be a dream team.

 

Please forgive me for dampening your spirits with the topic of today’s blog. Taxes in the year of death will hardly put you into a joyous mood for the weekend. But it might help some people who have suffered a terrible loss and need some guidance in this space. We had an interesting case recently and it struck me that it is a topic that could help people in a small way. We will introduce you to Saul Goodman and his wife Dee and look at

  • Background
  • Year of Death – Saul and Dee
  • Year of Death – Dee
  • Year after Death
  • Our role

Background

Saul and Dee Goodman are married for over 40 years and have 5 children Amy, Brian, Claire, Don, and Emma. None of the children are dependents. They ran a very successful legal practice and are wealthy. He and Dee have pensions, shares and property and their annual income was over €200,000. Both are in their 70s and Saul was in poor health from the start of 2021. His health continued to deteriorate, and he passed away at the end of November 2021. Their incomes for 2021 were

 

Saul
Pensions & ARFs €75000
Rental Income €5000
Dividends €45000
Total €125000

 

Dee
Pensions & ARFs €50000    [€15000 received in December]
Rental Income €5000      [€1000 received in December]
Dividends €25000    [€5000 received in December]
Total €80000

 

They are jointly assessed, and Saul is the assessable spouse.

Taxes Year of Death – Saul and Dee

In the year of death, Saul is taxed on all his income and on Dee’s income up to the date of death. They will do a joint tax return for 2021 and will pay tax on Saul’s Income of €125000 and Dee’s income of €59000 up to the end of November which is her

 

Pension & ARFs €35000
Rental Income €4000
Dividends €20000

Their combined total income under joint assessment is €184000. They get the normal tax credits and rate bands as a married couple as follows

 

First €70600 @ 20% €14120
Balance €113400 @ 40% €45360
Total €59480
Less Tax Credits
Married €3300
PAYE x 2 €3300
Age €490
Tax Liability €52390
Less Dividend Withholding Tax €16250
Less PAYE paid €23280
Balance Due €12860

 

Year of Death – Dee

Dee is taxed on her income from the date of death until the end of the tax year. This is the income she received in December and came to €21000 as you can see above. She gets the lower rate of €35300 but she can get the widowed person in the year of death credit of €3300. Her tax liability is as follows

 

€21000 @ 20% €4200
Less Tax Credits
Widowed in Year of Death €3300
PAYE – only need €900
Tax Liability Nil
Less Dividend Withholding Tax €1250
Less PAYE paid €3250
Tax Refund €4500

In Dee’s case, she ended up with a tax refund which was due to

  1. Her tax credits covered the tax on her income in full
  2. She had paid tax on the ARFs and dividends so got all that back

She gets an annual payment from her ARFs and these come in later in the year. We went through her bank statements to see when the ARFs were paid. Those paid after Saul died would form part of her tax return.

For Preliminary tax purposes for 2022 Dee will not have to make any payment. She has no liability for 2021 and based on the 100% rule wouldn’t have to pay preliminary tax. She will have a tax liability for 2022 given the level of her income.

Year after Death

As Dee has no dependents, she will get the lower rate band for a widowed person of €36800. This is the same rate band for a single person. She will get the widowed person credit of €2240

Let’s assume that the youngest child Emma was a dependent and is in secondary school. In that case, the lower rate band would stay the same at €36800 but the tax credits would be a lot higher. They would be

 

Single Person €1700
Single person child carer credit €1650
Widowed Parent 1st year after death €3600
Total personal credits €6950

 

The credits are €4710 more if you have a dependent child. The widowed person with dependent children’s credits are for 5 years after death and are

 

1st year after death €3600
2nd year after death €3150
3rd year after death €2700
4th year after death €2250
5th year after death €1800

Our role

Given that Saul passed away late in the tax year we were only going to do one return for 2021 for both. We would include all income for the year under Saul’s name as the assessable spouse.

But we looked at the numbers and with some ARF’s coming in in December it made perfect sense to do a return in Dee’s name. It was the right thing to do, and it would also lead to a tax refund.

We registered Dee for income Tax and then went hunting through bank statements to see when the ARF’s came in. The advantages of doing it right in this case were

  • Income that would suffer tax at the higher rate under joint assessment would be taxable at the lower rate
  • Extra credits in the year of bereavement
  • ARF’s coming in in December that had PAYE deducted

Summary

The above is to give you some idea of taxes in the year of death and after. If your spouse or civil partner dies in the tax year, then you can sort it out the year after. If you have dependent children, it would be useful to call Revenue at the end of the tax year of death. This is to inform them of the change of circumstances so that they can give you the extra tax credits. If you don’t get to it, it’s not a big issue, as Revenue will update the tax credits in the year after too. Don’t worry about this as there is plenty of help out there.

Do you need help with this to make sure everything is right? If so, Start here

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