Tax Paid On Deceaseds Pension

asamson

Hi i hope someone can help,a friend of mines mother has not long lost her husband,and had been contacted by a private pension company from which her husband had this pension with,and paid her a lump sum of £7,900 but when she recieved the money she only got £5,400 as the tax man had taken the rest.

What i'd like to know is does this sound about the right amount the tax man would take as it seems to me a bit extorionate.(both are retired)

Thanx for any help that anybody can offer me.

dunstonh

death benefits are normally free of tax if the pension is prior to commencement (i.e. still invested and no income has been taken - terminology is uncrystallised).

If the pension income has been taken (i.e. an annuity purchase - terminology is cystallised) then the death benefits will depend on who it was set up. If value protect was selected, then the outstanding lump sum will be paid minus 35% tax. If its continuation of income, then it will be subject to income tax at her highest marginal rate. Although that would continue as a monthly payment and not lump sum.

So, based on limited information, it looks like value protect but that would come out at £5135 payable. Although if any monthly payments were being held during administration of the death claim, then these could be added to that as a pro rata payment (i.e. whether it was set up monthly in arrears rather than monthly in advance)