If you die in the first half of a tax year your executors can usually expect to receive a substantial tax refund. The reason is simple. A whole year’s basic tax-free allowance will be allowable in full against any income you have already received. Also, your tax coding will have been based upon the assumption that you would be earning (or taking your pension) for a whole twelve months, though in fact you will probably not have received enough to get into a high tax bracket.
However, your tax refund will be, well, taxable. Seriously. This is one of those cases where the logic is flawless but the outcome seems ridiculous.
On the date of your death, the refund due to you will be classed as a “chose in action”. (Pronounce “chose” as if it was “shose” – it is a noun, not the past tense of a verb). Such a chose is an asset of your estate. It must be added to your assets generally and Inheritance Tax must be calculated accordingly.
A recent Tax Tribunal held that such an asset would indeed fall within the scope of the Inheritance Act of 1984
“The Lord gave and the Lord hath taken away; blessed be the name of the Lord” Job 1:21.
