Irish State Pension, 18 year back dated lump sum

[timcol]

Hi, I'm asking on behalf of an 85 year old who was born and worked in the Republic of Ireland until his mid 20's. Its a complicated issue and I cant find any similar case online to draw comparison.

It began as I was convinced he was entitled to some sort of state pension and after many months of letters and evidence he was granted a partial state pension worth about 500 euro per month. This was granted when he was 83 so he had missed out on 18 years of payments. several months later, I contacted the Irish pension office about obtaining a letter explaining that he had only received this income from age 83 (His council tax office wanted him to pay back 18 years worth of council tax reduction) and he was informed that he should have had his pension backdated to retirement and he was then awarded a payment of approximately £77,000. This was in May 2017 so he now has to declare this on this years self assessment as I assume it is taxable in the UK? Is there a special way of dealing with this issue as from my understanding if this is treated as being earned entirely in the 2017/18 tax year he will have to pay far more tax than he would have, had he payed tax due each year since 1998. He also receives a UK state pension and a small private pension of approx £3000 a year.

Any advice would be appreciated

Thanks

[pawncob]

This should explain it:
https://www.taxationweb.co.uk/forum/post170438.html?hilit=backdated pension#p170438

[timcol]

This should explain it:
https://www.taxationweb.co.uk/forum/post170438.html?hilit=backdated pension#p170438

Thanks for your reply, when I open this link is simply says "You are not authorised to read this forum."

not sure if this is because I am a new poster. I tried searching for the post number but it returns no results.

[pawncob]

My client has been retired for 12 years, and has just received a notification of an increased state pension, due to Additional Contracted Out Deductions, backdated to 2004 and amounting to over £14,000. This not a deferral of her pension, it is an increment to her existing pension.

The receipt of this in one year will push her into higher rate tax, and even if it's allocated to the correct years it may still do so in some.

Is it all included in one year?
Is it apportionable to individual years?
Is any adjustment limited to the last 4 years?

HMRC's not very helpful. Is state pension treated differently?
http://www.hmrc.gov.uk/manuals/eimanual/EIM74103.htm

But further research suggests it won't raise the tax rate if it's a lump sum, which this seems to be.
http://www.hmrc.gov.uk/manuals/eimanual/EIM74651.htm

She also received some £630 " to cover any loss of use of this money". It is NOT stated to be interest, but "has been worked out using the interest rates for each tax year that you were without this money". I assume this is not taxable, but would welcome any other views on this.

With a pinch of salt take what I say, but don't exceed your RDA


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Ian McTernan CTA Posts: 1232Joined: Wed Aug 06, 2008 3:02 pmLocation: BedfordContact:
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Re: Backdated pension payments

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Postby Ian McTernan CTA » Thu Feb 19, 2015 4:06 pm

I'd contact the tax office and point out that to tax it at the higher rate would be unfair as the payment relates to multiple years and the interest (sort of like repayment supplement, not taxable) added to the payment does not compensate for the higher rate tax that would be charged. They can easily rectify it by extending her basic rate band by the amount of the payment for the relevant year.

I'd be asking why the error occurred in the first place.

It could be argued the payment isn't taxable at all, being compensation, but you might struggle to get that one through.

McTernan Associates Ltd
Chartered Tax Advisers
Bedford
Email through link on website:
http://www.imcternan.com

[timcol]

Thank you this is very helpful. That section of the Employment Income Manual seems to cover it and it at least gives me a position to argue from if it comes to it. I imagine they might try to argue that this only applies to UK Social Security Lump-Sum Payments but that would be highly unreasonable.

I will update with the outcome