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Inheritance Tax

Clients Husband, and now client have both died.

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My client's husband died in January 2018 leaving his entire estate to my client. Included in this estate was a payout of life insurance policy in the value of circa £50k  paid in May 2018- is this taxable in 2018/2019 return as it wasn't dealt with by probate is it classed as other untaxed income. Total value of entire estate of both client (who has just died) and husband is less than £900k which three sons are going to inherit.

Having spent my entire career in corporate taxation the inheritance bit has gone rusty.

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By CJaneH
07th Jan 2020 16:40

Check that Life assurance was Life Assurance and not one of those Investment bonds (5%p.a. for 20 years then chargeable events).

If it was an investment bond then death gives a chargeable event, treated as income of the deceased, and falls in estate unless written in trust.

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By Tax Dragon
07th Jan 2020 17:01

It seems your question has caused an inordinate amount of confusion (for, if others are not confused, I am). Incidentally, you also seem to be confused, as the 2018/19 return is nothing to do with inheritance tax, and inheritance tax is nothing to do with the 2018/19 return.

It seems to me that there was a policy on the husband's life. If it was in his name, it would have been taxable on him - income and inheritance taxes. If it was written in trust, it's potentially taxable (income and inheritance tax) on the beneficiary - presumably your former client - or on the trustees (income tax) depending on the nature of the trust.

Only certain policies are liable to income tax. Others have covered that point. The proceeds are, by the sound of it, in your former client's estate, for inheritance tax. For by her death it's just money. I doubt inheritance tax is your problem.

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Replying to Tax Dragon:
By welshwizard62
08th Jan 2020 13:53

Thank you Tax Dragon, I should have been clearer with my explanation. My client's husband died in Feb 2018, his affairs were all dealt with by someone else. My client was paid out on his life policy in May 2018, a considerable sum. My question was is that taxable in 2018/19 tax return. She passed away last week, so all affairs are now in probate. Whole estate is less than £900k so no inheritance tax. This policy is not taxable I have now checked that. Your reply makes perfect sense .

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