IT41 - Bereavement – Tax Related Information

Revenue guidelines for personal representatives.

What to do about tax when someone dies

While tax is not the foremost consideration when someone dies, it is nevertheless one of the areas that must be addressed before a deceased person’s financial affairs can be finalised.

Contents

This Booklet will explain:

• Section 1: Some general terms and procedures relating to the passing on of property following a death
• Section 2: Personal Representative’s duties regarding:
  • Settling any of the deceased person’s outstanding tax matters up to the date of death,
  • Paying tax(es) on any Income or Capital Gains arising during the period when the estate is being administered.
• Section 3: Beneficiary’s duties regarding the deceased person’s estate and possible Inheritance Tax implications
• Section 4: The special tax exemptions and reliefs that apply to Surviving Spouses or Surviving Civil Partners
• Section 5: If there are trustees appointed under a deceased person’s will or during their lifetime, their duties regarding Income Tax, Capital Gains Tax and Discretionary Trust Tax.
• Appendices
  • Appendix A - Group Thresholds For Capital Acquisitions Tax
  • Appendix B - Calculation Of The Tax-Free Amount
  • Appendix C - Examples Of Income Tax Calculations For The Year Of Death
  • Appendix D - Some Useful Information Leaflets and Booklets
• Glossary of terms

Section 1 - Some General Terms And Procedures

Before looking at the tax consequences arising on a death (sections 2-5), it might be helpful to look briefly at some key terms, at the ways in which property passes on a death to the beneficiaries and at certain procedures that must be gone through before assets are handed over to the beneficiaries.

1.1 What is an “Estate”?

A deceased person’s estate consists of whatever assets (e.g. bank accounts, stocks and shares, house, land, livestock, jewellery, car, etc.) can be passed on to beneficiaries following the deceased person’s death.

1.2 How does the estate pass on to the beneficiaries?

The assets which make up the deceased person’s estate can pass on death in a number of ways. Assets left by will pass to the beneficiaries in accordance with the terms of the will. If there is no will (a situation known as intestacy), assets that would otherwise have passed by will pass instead under special rules laid down by law. In addition (as illustrated at 1.2.2), assets can also pass outside of the will or intestacy.

1.2.1 Examples of assets which pass under the will or intestacy

Assets owned in the deceased person’s sole name.

Assets owned by the deceased person but placed in the name of another for convenience or some similar reason.

Assets placed by the deceased person in the joint names of the deceased person and another without the intention of benefiting that other person.

1.2.2 Examples of assets which pass outside the will or intestacy

Assets passing by nomination, e.g. the deceased person may have instructed An Post to pay saving certificates on his or her death to a particular person called the nominee.

Death benefits passing under a life insurance policy or pension scheme where the beneficiaries are particular family members named in the policy or scheme.

Assets passing in which the deceased person had an interest for his or her life only.

Assets placed by the deceased person in the joint names of the deceased person and another with the intention of benefiting that other person on the deceased person’s death.

1.3 The Personal Representative

The Personal Representative is the person who is responsible for finalising the deceased person’s affairs. He or she must, within a reasonable time, collect the assets passing under the will or intestacy, pay any debts and distribute the surplus assets to the beneficiaries entitled to them.

If there is a will, it is likely that the Personal Representative has been appointed by being named in the will as its executor and has taken on the responsibility for that reason. If there is an intestacy (no will), the Personal Representative will probably have taken on the responsibility simply because he or she is the deceased person’s spouse or civil partner or one of the next-of-kin. A Personal Representative who has not been appointed by will is known as an administrator.

1.4 Beneficiary

A beneficiary is a person who inherits either the whole or part of the deceased person’s estate whether passing under the will or intestacy or outside of the will or intestacy.

1.5 Trustee

Instead of providing for property to be given directly to the beneficiary, the deceased person’s will may provide that, for a specified period, the property is to be held on trust on behalf of a beneficiary by trustees named in the will. The trustees will take over the management of the trust property only after the estate has been administered by the Personal Representative. The trust will then continue until the time specified in the will for the ultimate handing over of the property.

Alternatively, the deceased may have placed property on trust during his/her lifetime. This property does not form part of the estate of the deceased but is held by the trustees for the beneficiary.

1.6 Before assets are handed over to the beneficiaries

Before assets are handed over to the beneficiaries certain procedures must be gone through. Broadly, these are as follows:

1.6.1 Assets passing outside of the will or intestacy

In the case of an asset passing outside of the will or intestacy, production of a death certificate by the beneficiary is often all that is required to establish the beneficiary’s entitlement to receive the asset in question.

1.6.2 Assets passing under the will or intestacy

In order to get legal confirmation of his or her appointment, the Personal Representative must apply to the Probate Office of the High Court for a document known as a Grant of Representation. The Grant of Representation acts as an assurance to financial institutions (e.g. banks, building societies, credit unions, etc.) and to others that they can safely place the deceased person’s assets in the hands of the person named as Personal Representative in the grant. The Grant of Representation is also known as a Grant of Probate (where there is a will) or Letters of Administration (where there is no will).

A solicitor acting on behalf of the Personal Representative will normally make the application for the Grant of Representation. In straightforward cases, it may be possible to make a personal application for the grant through the Personal Application Section of the Probate Office.

1.6.3 Special additional procedure relating to money in joint names

In the absence of a letter of clearance from the Revenue Commissioners, banks, building societies and other financial institutions are prohibited by law from releasing monies (other than current accounts) lodged or deposited in the joint names of the deceased and another person or persons. This applies if, at the date of death, the total of all the amounts standing with the institution in the joint names of the deceased person and another or others exceeds €50,000. It does not apply, however, to monies which have only been held in the joint names of the deceased person and his or her surviving spouse or surviving civil partner. Applications for letters of clearance for production to financial institutions should be made to the deceased person’s Revenue office using Form CA4 - Capital Acquisitions Tax which is available to complete and print out on our website.

Section 2 - If You Are A Personal Representative

In summary this is what you should do about tax – and when you should do it.

What to do about tax and when if you are a personal representative

2.1 Notifying the Revenue office

The deceased person’s Revenue office should be advised as soon as possible of the date of death and the name and address of the Personal Representative. This will ensure that correspondence will be addressed to the Personal Representative until such time as the administration of the estate is finalised. The address of the deceased person’s Revenue office can be found on any correspondence from that office to the deceased person. If you are in any doubt as to which Revenue office to contact, get in touch with your local Revenue office.

2.2 Sorting out the deceased person’s pre-death affairs

As Personal Representative, you are responsible for settling any outstanding tax matters for the period up to the date of death. Depending on the circumstances, you may need to pay additional taxes or claim a repayment.

Remember that:

• If you distribute the estate without paying any outstanding tax liabilities, you may have to pay the tax out of your own pocket.
• If you fail to claim a tax rebate due to the estate, you may have to make good the loss to the estate.

If the deceased person was self-employed, you will most likely get their accountant to file any outstanding Income Tax returns and business accounts with their Revenue office. As well as Income Tax, you will also need to ensure that any outstanding VAT, employer’s PAYE/USC/PRSI, or other taxes and levies in respect of the period up to the date of death are fully paid.

If the deceased person was an employee, there may be a PAYE tax rebate due, as their standard rate band and tax credits for the year of death may not have been fully utilised. The deceased person’s employer will send Form P45 to the Revenue office that dealt with their tax affairs. Any tax rebate will form part of the deceased person’s estate. As Personal Representative, it is your responsibility to file any outstanding tax return on behalf of the deceased person.

2.3 Completing the Inland Revenue Affidavit

The Inland Revenue Affidavit is an account of the deceased person’s estate that has to be completed and sworn by the Personal Representative in order to get a Grant of Representation from the Probate Office.

2.3.1 What information is looked for in the Affidavit?

The Inland Revenue Affidavit looks for:

• a full account of the deceased person’s assets and liabilities at the date of death,


• information on, among other things, assets passing outside of the will or intestacy,


• details of the beneficiaries and of the value of the benefits taken.

To complete the Affidavit, you will need to establish whether the beneficiaries have received any other gifts or inheritances from within the same group threshold as that of the disponer at any time on or after 5 December 1991.

2.3.2 What happens to the Affidavit?

The Inland Revenue Affidavit is submitted directly to the Probate Office together with all other necessary documentation for the Grant of Representation in the deceased’s estate. When the Grant of Representation has issued, the Probate Office will send a copy of the documentation to Revenue, together with details of the Grant of Representation.

Please see booklet A Guide to Changes to Probate & Capital Gains Acquisitions Tax on our website.

2.4 Income and Capital Gains during the administration period

It may take the Personal Representative some time to administer the estate during which time income may be earned or capital gains may be made. Broadly the position is as follows.

2.4.1 Income Tax

The Personal Representative is liable to pay Income Tax at the standard rate on income earned during the administration period. There is no entitlement to tax credits or to any of the reliefs otherwise available to individual taxpayers.

In certain circumstances, the Revenue office may concessionally agree to treat the beneficiary as succeeding to the inheritance from the date of death. In such circumstances, the beneficiary will take full responsibility for paying Income Tax on the post-death income as if he or she had been entitled to the asset - and the income - from the date of death.

2.4.2 Capital Gains Tax

Death does not give rise to a Capital Gains Tax liability. For example, if the deceased person bought shares for €12,700 and they were worth €19,050 at the date of death, the €6,350 capital gain is ignored.

If the Personal Representative sells, or otherwise disposes, of any asset during the administration period, there may be a liability to Capital Gains Tax - but only to the extent that the value of the asset in question has increased between the date of death and the date of sale. Following on from the example above, if the Personal Representative sells the shares during the administration period for €21,590, the relevant capital gain is only €2,540.

No chargeable gain accrues to the Personal Representative(s) on the transfer to a legatee of an asset bequeathed to him/her by the deceased.

Please note that the due date for the payment of Capital Gains Tax depends on the date of disposal. For disposals made from 1 January to 30 November, the tax is due by 15 December of that year, if the disposal takes place in December, the payment is due by 31 January of the following year.

Section 3 - If you are a beneficiary

In summary this is what you should do about Inheritance Tax - and when you should do it.

All inheritances with a valuation date in the twelve month period ending on the previous 31 August should be included in your return to be filed by 31 October. This means that where the valuation date arises between 1 January and 31 August, the pay and file date is 31 October in that year. Where the valuation date arises between 1 September and 31 December, the pay and file date is 31 October in the following year.

The valuation date is the date at which the assets are valued for Inheritance Tax purposes. The valuation date for assets passing under the will or intestacy is usually the date on which the Grant of Representation issues from the Probate Office or District Probate Registry. If assets are passing outside of the will or intestacy, the valuation date will normally be the deceased person’s date of death.

For further information about filing your return and paying your Inheritance Tax, please see IT39 - Guide to completing the IT38 return (Pay and File).

3.1 What is Inheritance Tax?

Inheritance Tax is a tax which can arise where a beneficiary receives an inheritance as a result of someone dying. The beneficiary is responsible for paying the tax. As outlined earlier, an inheritance can be taken under a will or intestacy - or in some other way, for example, where an asset in the joint names of the deceased person and another is taken, upon death, by that other person as survivor.

3.2 How will I know if I have to pay Inheritance Tax?

In this regard a distinction is made between surviving spouses or surviving civil partners and other beneficiaries.

3.2.1 Surviving spouse or surviving civil partner

If you are a surviving spouse or surviving civil partner taking an inheritance from your deceased spouse or civil partner, the inheritance, regardless of value, is completely exempt from Inheritance Tax.

3.2.2 Other Beneficiaries

In the case of other beneficiaries, whether or not Inheritance Tax may be payable depends on whether:

• the total value of all gifts and inheritances,


• received by you - the beneficiary,


• from the deceased person and from anybody else to whom the same group threshold applies,


• in the period from 5 December 1991 up to (and including) the date of the inheritance exceeds a tax-free element called the “tax-free amount”

Appendix B, shows you how to work out the tax-free amount.

3.3 What rates of tax apply?

The following rates of Inheritance Tax apply to gifts and inheritances taken on or after 1 December 1999.

• Up to the “tax-free” amount: Nil
• Remainder:
  • 25% since 8 April 2009,
  • 30% since 7 December 2011,
  • 33% since 6 December 2012

3.4 Are there any reliefs/exemptions?

In addition to the exemption for a surviving spouse or surviving civil partner, there are a number of other important exemptions and reliefs available, including reliefs for agricultural and business property and exemption for certain dwelling-houses. Where agricultural or business relief applies, the market value of the property for Inheritance Tax purposes is substantially reduced by 90%. Where the dwelling-house exemption applies, the market value of the dwelling-house is completely exempt.

3.5 What assets are liable to Irish Inheritance Tax?

An asset will be liable to Irish inheritance tax:

• if the asset is located in Ireland, or
• if the asset is located abroad, and the deceased person or beneficiary is resident or ordinarily resident in Ireland.

Section 4 - If You Are A Surviving Spouse Or Surviving Civil Partner

This section gives an outline of the main tax exemptions and reliefs specifically for surviving spouses or surviving civil partners.

4.1 Main tax exemptions and reliefs for surviving spouses or surviving civil partners

In summary these are:

• a total exemption from Inheritance Tax for benefits taken by the surviving spouse or surviving civil partner,
• the special Income Tax rules that apply for the year of death,
• if you have dependent children, the Widowed Person or Surviving Civil Partner with qualifying child tax credit available for the 5 years after death.

These are explained in more detail below.

4.1.1 Surviving spouse or surviving civil partner exemption from Inheritance Tax

If you take an inheritance from your late spouse or late civil partner you don’t have to pay Inheritance Tax on that inheritance. The exemption is unlimited - regardless of the value of the inheritance, it is entirely exempt. There is no necessity to claim this exemption and you are not required to submit any Inheritance Tax forms.

4.1.2 Income Tax for the year in which your spouse or civil partner has died

Your Income Tax treatment for the tax year (i.e. the year to 31 December) in which your spouse or civil partner has died will depend on how you and your spouse or civil partner were taxed before your spouse’s or civil partner’s death. Your Revenue office will help you to do the calculations and make sure you have the right tax credits. Broadly, the position is as follows:

If your late spouse or late civil partner was the “assessable spouse” or “nominated civil partner", i.e. the person responsible for making a joint tax return on behalf of both of you, then you will be entitled to an increased widowed person or surviving civil partner with qualifying child tax credit from the date of your spouse’s or civil partner’s death up to the following 31 December. The widowed person’s or surviving civil partner’s standard rate band (or increased rate band if you have dependent children - see 4.1.3) will apply for this period.

If you were the “assessable spouse” or “nominated civil partner", you will continue to get the married person’s or civil partner’s tax credit and appropriate married person’s or civil partner’s standard rate band for the remainder of the tax year. You will be taxable on your own income for the full tax year in which your spouse or civil partner died plus your late spouse’s or late civil partner’s income from 1 January to the date of death.

If you were both taxed as single persons, you will get the increased widowed person’s or surviving civil partner’s allowance and single person’s standard rate band for the year.

4.1.3 Special allowance for surviving spouse or surviving civil partner with a qualifying child

If you have any qualifying children you may be entitled to an Income Tax credit (called “widowed person” or “surviving civil partner with qualifying child” tax credit) for the 5 tax years after the year of your spouse’s or civil partner’s death. You may also be entitled to the “one-parent family tax credit” for as long as you have any qualifying children (for further details see Information Leaflet IT9 - One Parent Family Tax Credit).

Remember:

Let the Revenue office know of your spouse’s or civil partner’s death as soon as you can. They will ask you for certain information - including the date of death, your late spouse’s or late civil partner’s Personal Public Service (PPS) number and the name of the Personal Representative. They will also need to make sure you are given your correct tax-credits and standard rate band. To do this they will need to know if you have any qualifying children and if you will be receiving a pension (either from The Department of Social Protection or from your late spouse’s or late civil partner’s employer).

Don’ t Worry

If you do not have all the information when you are contacting the Revenue office, advise them of the details you do know. The Revenue office will request any outstanding details in due course.

Section 5 - If You Are A Trustee

In summary this is what you should do about tax - and when you should do it.

What to do about tax and when if you are a trustee

You should be aware that, in addition, the trustees have secondary liability for the payment of any Inheritance Tax due by a beneficiary as a result of the appointment of trust property to him or her. This means that if a beneficiary should fail to pay, the trustees will have to do so.

5.1 Notifying the Revenue Office

You should inform the deceased person’s Revenue office about the trust in case the Personal Representative has not already done so. This should be done when the Personal Representative passes the assets to be held on trust by you, as trustee under the terms of the will of the deceased person.

5.2 Paying Income Tax

The income generated by assets left on trust is liable to Income Tax at the standard rate. Beneficiaries are taxed on income which is appointed to them and are entitled to a credit for the Income Tax paid by the trustees in respect of this income. Trustees should return income and charges on Form 1. Where income is not distributed by the trustees within 18 months of the end of the year of assessment there is a surcharge at the rate of 20% on this income.

5.3 Paying Capital Gains Tax

No Capital Gains Tax arises when assets left on trust are transferred by the Personal Representative to the trustees. However, a subsequent sale of these assets by the trustees or their appointment to a beneficiary may give rise to a Capital Gains Tax liability. The tax is calculated by reference to the increase in the value of the asset between the date of death and the date of sale or appointment. Trustees should return Capital Gains on Form 1.

5.4 Paying Discretionary Trust Tax

In the case of a discretionary trust, where there is no immediate benefit under the trust, the trust assets are subject to the following Discretionary Trust Tax charges:

• an immediate once-off 6% charge,
• an annual 1% charge arising on 31 December in each year - to be paid by 30 April in the following year (other than the 31 December occurring in the twelve months immediately following the date on which the 6% charge arose).

However, where the deceased left young children as potential beneficiaries of the trust, the 6% and 1% charges will not arise until the youngest of these children reaches the age of 21 years.

There are a number of exemptions from the Discretionary Trust Tax charges - trusts set up exclusively for incapacitated persons, for public or charitable purposes or approved superannuation schemes.

Self-Assessment returns for the 6% and 1% Discretionary Trust Tax charges must be completed and sent, together with the tax due, to

The Revenue Commissioners,

Capital Acquisitions Tax Unit,

Block F, Athy Business Campus,

Castlecomer Road,

Athy,

Co. Kildare.

where all Discretionary Trust Cases are dealt with. If this is done within the time-limits specified above, no interest will be charged.

Appendices

Appendix A - Group Thresholds For Capital Acquisitions Tax

Group thresholds Applicable for Capital Acqusistions Tax

Appendix B - Calculation Of The Tax-Free Amount

This appendix/section shows how to work out the tax-free amount referred to in 3.2.2. Essentially two situations are possible.

1. Where no other benefits have been taken by the beneficiary
   This is a very straightforward situation. It arises where the beneficiary takes an inheritance and no other gifts or inheritances have been taken by the beneficiary from the deceased person or any other from 5 December 1991 onwards. In these cases, the tax-free amount that applies to the inheritance is arrived at by a simple application of the table at Group thresholds Applicable for Capital Acqusistions Tax.
   In the Table, beneficiaries are divided into three groups, A, B and C, according to their relationship to the person who provided the inheritance. The Table shows a separate tax-free amount for each of the three groups of relationship and that the amounts vary according to the year in which the inheritance is taken. Opposite the year in which the inheritance was taken, you will see three tax-free amounts, one for relationships in group A, one for those in group B and one for those in group C. The tax-free amount you require is the one that is under the appropriate relationship heading.
   For instance, provided no other gift or inheritance is involved, a quick glance at the table will show that the tax-free amount for an inheritance taken by a child from a parent in 2011 is €332,084.
2. Where other benefits have been taken by the beneficiary but they are not within the same group threshold

   This situation is similar to that outlined above. It arises where the prior gift/inheritance, although taken on or after 5 December 1991, falls into a different group threshold to the current inheritance.

   A separate threshold applies for each group and prior gifts/inheritances to which a different threshold applies are not taken into account when calculating the tax on the current inheritance.

3. Where other benefits including benefits to which the same group threshold apply have been taken by the beneficiary
   It arises where the prior gift/inheritance, taken on or after 5 December 1991, falls within the same group threshold as the current inheritance. The method of calculating the tax free amount for the group of benefits in this situation is set out in the following example.

When you file your return on ROS the Revenue Online Service, your Inheritance Tax will be calculated for you.

For more information about filing your return and paying your inheritance tax, please refer to the leaflet IT39 - Guide to completing the IT38 return (Pay and File).

Appendix C - Examples Of Income Tax Calculations For The Year Of Death

The married couple or civil partners may have paid more tax than this under the PAYE system. Whatever they paid over and above €400 will be refunded, provided there are no other arrears of tax outstanding.

The non assessable spouse or civil partner is entitled to the increased widowed person’s or surviving civil partner’s tax credit (€3,300) for the period 13 June 2011 to 31 December 2011 against the tax due on his or her expected earnings of €9,000 for the remainder of the tax year. He or she will also get the widowed person’s or surviving civil partner’s rate band.