Planning for death
For third time in a month we have received an email which begins: “It is with deep sorrow I have to inform you of the sudden death of our colleague…”. This is a reminder that death is not a distant appointment; it should be planned for as it may arrive tomorrow.
A useful way to introduce the topic of death into a conversation with a client is to check whether they are married or in a civil partnership with their long-term partner, then run through the benefits and tax reliefs which the survivor of an unmarried couple may be denied on death.
For third time in a month we have received an email which begins: “It is with deep sorrow I have to inform you of the sudden death of our colleague…”. This is a reminder that death is not a distant appointment; it should be planned for as it may arrive tomorrow.
A useful way to introduce the topic of death into a conversation with a client is to check whether they are married or in a civil partnership with their long-term partner, then run through the benefits and tax reliefs which the survivor of an unmarried couple may be denied on death.
- Surviving unmarried cohabitees have no rights to state bereavement benefits based on their late partner's national insurance contributions.
- The unmarried partner may not be able to receive a pension from their deceased partner's employer, although that will depend on the terms of the pension scheme.
- Assets passed to the bereaved unmarried partner may be subject to inheritance tax, where the value of the estate exceeds the nil rate band of £325,000.
- There is no transfer of the unused IHT nil rate band to the survivor of an unmarried couple.
When valuable assets are exchanged between the couple before death the transfer is taxed as if it was a sale at market value, if the two parties are not married.
The pension issue may be solved in advance by making a nomination in favour of a named individual and ensuring the pension trustees have a copy of that nomination. The other issues can only be avoided by marrying or not dying.
The conversation can move on to what would happen to the business if the main earner died suddenly. Practical issues such as; who would take control of the bank accounts, access the passwords to computer systems, and step in to meet the business customers' needs, all need to be addressed.
This last point is relevant to your own practice if you operate as a sole practitioner. Your clients' tax return filing deadlines will still have to be met after your death or incapacity. Have you nominated alternate for your business, and does your spouse or partner know who that is?
The pension issue may be solved in advance by making a nomination in favour of a named individual and ensuring the pension trustees have a copy of that nomination. The other issues can only be avoided by marrying or not dying.
The conversation can move on to what would happen to the business if the main earner died suddenly. Practical issues such as; who would take control of the bank accounts, access the passwords to computer systems, and step in to meet the business customers' needs, all need to be addressed.
This last point is relevant to your own practice if you operate as a sole practitioner. Your clients' tax return filing deadlines will still have to be met after your death or incapacity. Have you nominated alternate for your business, and does your spouse or partner know who that is?
This is an extract from our tax tips newsletter dated 17 September 2015 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>
The newsletter contained links to related source material for this story and the other two topical, timely and commercial tax tips. Published weekly since 2007, every week it's clearly written and focused on precisely what accountants in general practice need to know about that week.
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