Death & Income Tax

Immediate Effect

Where a married couple were taxed jointly and the deceased person was not the assessed person, the assessed survivor is taxed on their income for the full year and the spouse’s income up to the date of death. The survivor gets the married person’s tax credit and standard rate band for the whole year.

If the couple were assessed jointly and the deceased person was the assessed person, that person’s tax and joint income are calculated up to the date of death with the full married person’s tax credit and standard rate band. The surviving person is taxed as a single person for the rest of the year and is entitled to the widow(er)’s tax credit and the single person’s standard rate band.

When assessed separately, the death of a husband or wife does not affect the other. The survivor would be entitled to the surviving widow(er)’s tax credit instead of the basic personal tax credit.

If the survivor has dependent children, they are entitled to a widow(er)’s credit for five years of assessment following the death, reducing from €2600 to €1800 over this period, provided they are not remarried and not living with a new partner. This is in addition to the single person childcare tax credit. There is a standard rate band of €44,000 for 2023. If the surviving spouse does not have dependent children, there is an additional widow(er)’s tax credit of €540.

PR Residence

The residence of an estate is based on the residence of the executors/administrators. If they are resident abroad, they may be assessed under Irish tax law.

If they are resident in more than one state, the state of administration (effectively where the assets are situated), in most cases, is the country of residence. An Irish estate is defined as excluding an estate whose income is exempt from Irish tax on the basis that the personal representatives are not Irish residents or ordinarily resident.

Income

The personal representatives gather the assets of the deceased and ultimately implement the terms of the will or intestacy. In some cases, there is a trust, in which event, at some point when the administration is completed, the assets may vest in trustees. The trustees may be the administrators or personal executors.

Personal representatives are responsible for pre-death obligations of the deceased. The personal representatives are liable for income tax on all income of the deceased up to the date of death. This includes arrears of income tax. As trustees, they are liable to the extent of the assets of the estate available to them. They are not personally liable beyond this.

Personal representatives are taxed on estate income arising in the course of administration. This is subject to the standard rate of tax. They are not liable to higher rates because they are not individuals and are not entitled to tax credits. They may claim normal deductions in the computation of tax.

Mortgage interest relief is available by reason of statutory provision. Income received after the date of death from investments is not apportioned to the time to which it relates. By way of exception, deposit income is apportioned.

Income in Administration

The personal representatives are assessed on the income of the administration period. If income is paid to the beneficiaries in the course of administration, it is taxable as income in the hands of the beneficiaries. The beneficiary is entitled to a credit for tax paid by the personal representatives.

Income of a specific legacy is treated by case law as belonging to the legatee during the administration period. This does not limit the personal representative’s obligation to account for tax.

An interest in the residue may comprise both income and capital. Regular payments to a beneficiary in the course of the estate are treated as income paid after deduction of standard rate tax.

When the residue is ascertained, it may be necessary to revise assessments on the beneficiary so that the maximum income is the share of the gross income of the estate. If amounts in excess of this have been received by the beneficiary, the excess is deemed to be capital.

Potential Anti-Avoidance

A surcharge applies when income is not distributed within 18 months after the year of assessment.

A revocable disposition is one by which the settlor or person creating the trust can derive benefit. The income is deemed to be that of the person creating the trust.

Dispositions of income for a short period are regarded as income of the settlor. There is an exception for covenants for an incapacitated individual or an individual over 65 years which exceeds or may exceed six years if the income arises from capital under the disposition and has been disposed of absolutely in favour of the other person.

Beneficiaries

Income paid to a beneficiary is grossed up at the standard rate and assessed on the beneficiary. The beneficiary is given a credit for the tax paid by the personal representatives.

In the case of a legacy, payments are grossed up and treated as income in the year they are received. When a legacy is transferred, payments on account are aggregated and related back to the years in which they arose. The legatee is deemed to succeed to the income from the date of death, so adjustments may arise.

A beneficiary may be entitled to an income interest in the income of the estate only. This may be for life or for a period. The income paid is subject to tax at the standard rate and treated as income of the beneficiary in the year in which it is received.

A beneficiary with an absolute entitlement to the residuary estate receives payments made during administration aggregated and treated as income of the year of receipt. They are received net of standard rate tax and cannot exceed the amount of income of the residue. The excess is considered a payment of capital.

Residuary income is the net income of the estate after deducting annual interest and other annual payments charged on the residue of the estate and estate expenses properly charged to income.

Apportionment

Upon completion of administration, the total sums paid to the beneficiary during the period of administration are aggregated and apportioned on a daily basis over the period of administration. Between the estate of the deceased and the life tenant, income is apportioned to the date when the income becomes due and the date the income is paid.

Between the estate of the testator and the life tenant, where the life tenancy has commenced, income is apportioned between the date when the income becomes due and the date when the income is paid. Between the estate of the deceased life tenant and the remainderman, where the life tenancy has ceased, income is apportioned between the date when the income became due and the date it was paid.

The effect is that income accrued but not paid after the testator’s death is income of the testator and not the life tenant. At the death of the life tenant, income accrued prior to death is income of the deceased life tenant and not the remainderman.

Adjustment

After completion of administration, the liabilities are revised. Payments to the beneficiaries are measured against residuary income for the period. If the total payments made at the standard rate exceed the total gross income, the excess is treated as capital and revised assessments may be made. If the total payments made grossed up are less than the total residuary gross income, that income is reduced to a proportion of the total payments received.

Common Concessional Treatment

Where a beneficiary has an absolute interest in assets from the date of death, Revenue by concession generally treats the beneficiary as having an absolute interest from the date of death. Income is assessed directly on the beneficiary.

By concession, a beneficiary with a limited interest is treated as being entitled to their share of the income of the estate as and when it arises to the personal representatives. This means the beneficiary is assessed on the income from the date of death.

By concession, in the case of a residuary legatee, when the residuary assets are readily identified from the outset, the assets may be regarded as passing to the residuary legatee from the date of death.

Capital Gains

The personal representatives are responsible for capital gains tax arising in the course of administration of the estate. They are not entitled to the reliefs and exemptions available to individuals. The acquisition cost is the market value at the date of death. By concession  Revenue may allow the beneficiaries to succeed to the assets from the date of death.