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.
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