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Where Taxpayers and Advisers Meet

Pension arrears paid after death

Brightonian
Posts: 99
Joined: Wed Aug 06, 2008 3:31 pm

Pension arrears paid after death

Postby Brightonian » Tue Mar 27, 2018 4:24 pm

I have a client whose mother died a year ago. The estate was well below the IHT nil rate band - £118,000 roughly.
Last week, out of the blue, she received a letter DWP. It seems that they had underpaid her mother's pension from 2009 until her death. They enclosed a cheque, made payable to my client, for almost £32,000.
My clients wonders if she needs to pay income tax on this sum.
I have never come across anything like this before. I have had a client who was paid some arrears, as she forgot to claim State pension at the right time. The arrears were related back to the year they were 'for', rather than the year in which they were paid. However, in this case, not only is the pensioner dead but some of the years that the payment is for are now time-barred.
Does anyone know what the position is? Is my client liable in her own right? The DWP letter did not give a year-by-year breakdown of the payment and did not mention tax at all.
Thank you.

pawncob
Posts: 4352
Joined: Wed Aug 06, 2008 4:06 pm
Location: West Sussex

Re: Pension arrears paid after death

Postby pawncob » Tue Mar 27, 2018 4:57 pm

Yes , tax is payable, but there are restrictions on the amount payable and tax is limited to the last four years.
https://www.accountingweb.co.uk/any-answers/taxable-pension-arrears

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim74651
With a pinch of salt take what I say, but don't exceed your RDA

Brightonian
Posts: 99
Joined: Wed Aug 06, 2008 3:31 pm

Re: Pension arrears paid after death

Postby Brightonian » Tue Mar 27, 2018 5:04 pm

Dear pawncob,

Thank you for taking the time to answer my question. I will check out the links you posted.
Kind regards.

Brightonian
Posts: 99
Joined: Wed Aug 06, 2008 3:31 pm

Re: Pension arrears paid after death

Postby Brightonian » Wed Mar 28, 2018 9:50 am

Having looked at the information on arrears, it looks as though HMRC can assess only 2013/14, 2014/15, 2015/16 and 2016/17. Is this correct? The pensioner died in February 2017, even though the arrears have just recently been paid. They have been paid to the daughter but presumably HMRC will assess the deceased mother.

pawncob
Posts: 4352
Joined: Wed Aug 06, 2008 4:06 pm
Location: West Sussex

Re: Pension arrears paid after death

Postby pawncob » Wed Mar 28, 2018 3:22 pm

Yes, I think it's restricted to four years assessment.
HMRC will assess the estate (Execs) so funds may be required from the beneficiaries.
With a pinch of salt take what I say, but don't exceed your RDA


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