Help with tax code of 85 yr old

Anastasia

Went through Dad's paperwork on Friday. Unfortunately he didn't keep any work pension slips or his other P60s. There were two coding notices. One for year ending April 2010 where the Tax code is 1001T and one for this current year which is 686T.

Looking at the breakdowns it seems as though his pension went up over his personal allowance and the married couples allowance fell by half. I can see the calculations now. Personal allowance plus married couples allowance minus state pension gives you the tax code. It all looks ok to me in the sense that I understand how it has been calculated.

The R27 arrived when I was there so it was great to know what that was for and we have started filling it in. Then we will see what figures come back for this year.

Sorted out council tax as well and unbelievably it looks as though mum will get around 90% of Dad's work pension. We were expecting it to be around half!

Thank you all for your help.

Mikeyorks

Anastasia wrote: »

.... the married couples allowance fell by half. .

That will normally be because the married allowance is only allowed at the tax rate of 10%. So only 50% of the allowable sum is shown on the P2?

If you're comfortable the P2 shows the true position - and that Code has been operated by the pension provider? Then everything looks OK.

unbelievably it looks as though mum will get around 90% of Dad's work pension. We were expecting it to be around half!

Very curious ....... if you see my para 2 at post #9! My parents received pensions (relatively small ones) from the same provider and I'd always assumed the inflated inherited one had some basis in that. Did you check for a bereavement allowance from the provider .... as it's not always in headlines?

Niggles

Firstly I think you need to check out why the coding changed from 1001T to 686T between 2009/10 & 2010/11. Tax allowances were unchanged between those years so what caused this very significant reduction. It implies a potential tax increae of £630 in 2010/11.

I have had dealings with quite a few women who have been widowed in their 80's and there is often potential to claim transfer of spare Married Couple allowance if the husband has not used all of it himself every year. Do check this quickly as cut off times for earlier years are reducing as stated from 6 to 4 years.

Anastasia

There doesn't seem to be any mention of a bereavement allowance.

Coding was 1010T 2009/10, 649T 2010/11 and 686T 2011/2012. It seems that the married couples allowance falls quite quickly once you go over the personal allowance. I think once the R27 goes in for this year and we see the result of that we will know whether we need to make a claim for the year before. 2009/10 looks ok.

Niggles

It would be good if you could ascertain your fathers state pension so we could work with real figures to calculate his code but unless his total income was more than £22,900 in 2010/11 he would be eligible for the full £697 of Married Couples Allowance. (His income could be even higher depending on the age of your mother)
If his only other income apart from the SP was £6,900 then it looks as though he should have the full MCA, it ceratinly should not fall as you describe.
However if his income was over £22,900 (or possibly more) then the MCA does reduce.

Anastasia

These are the notes I made from the coding notices. I don't have figures from 2010/2011.

2009/2010 - Personal allowance £9640 +married allowance £6965 = £16,605
Minus state pension - £6505 = £10,100. Tax code = 1010T

2011/2012 - Personal allowance £10090 + married allowance £3648 = £13738
Minus state pension - £6956 = £6783. Tax code = 678T

Niggles

Apologies for slow response - been away.
The MCA is given at 10% so for 2009/2010 it is 10% of 6965 or £696.50
With a standard tax rate of 20% this would in my view lead to a tax code increase of half 6965 which is 3482.
For 2011/2012 the MCA is 7295 or £729.50.
Again with a tax rate of 20% this would lead to a tax code increase of half 7295 which is 3648.

So the way I see it the 2011/12 code is correct but the 2009/10 code gives relief of £1,393, twice the allowance of £696.50.

So if your father's state pension in 09/10 was 6505 and his other pension £6,900 his total income was £13,405, less his PA 9640 means £3,765 was taxable and tax due was £753. However he was also allowed the MCA of £696.50 so his final tax due was £56.50.

Your father's state pension in 11/12 was 6956 and his other pension £6,900 his total income was £13,856, less his PA 10090 means £3,766 was taxable and tax due was also £753. However he was also allowed the MCA of £729.50 so his final tax due was £23.70. (As he died recently his income is likely to be less than £13,856 for 11/12 and you will be able to claim back any tax paid so far)

Using the above figures you can see that you might have a liability to £56.50 of tax for 09/10 as the code of 1010T would not have deducted any tax from his £6,900 pension.

Cook_County

The executor has a responsibilty to pay any tax due up to the date of death and of course to claim refunds.

I'd simply ask the executor to complete R27s and let HMRC do the maths.

Once HMRC and the executor agree the numbers the executor could claim that HMRC should not collect any balance due - but this is not even where the executor is today.

Niggles

Just seen a report by the Office for Tax Simplification issued today March 6 2012.
In Section 3.33, bullet 7 page 20 it states:-
(There should be clarification on the way MCA..) is shown and explained on taxpayers‘ PAYE coding notices. Although the OTS understands that HMRC has been addressing some problems
where taxpayers were being given the full allowance in their codes, not restricted to
take account of the relief only being due at 10%, it will be important to check the
2012/13 coding notice run to ensure this problem has been resolved. We would
therefore anticipate keeping this under review in the second stage of the pensioner
review. In any event, the mechanics and explanations of how the allowance is
shown should still be reviewed.
So if any demand is made by HMRC for underpaid tax you could quote this report and say it is an HMRC problem.

John_Pierpoint

Mikeyorks wrote: »

I do tend to agree with that as I always decline to be an Executor with anyone else. Committees are a bit unwieldy I find - in these circumstances.
But if you have the better grasp of the tax aspect ..... better that someone with knowledge addresses it?

On a strictly practical point of view, I would certainly agree, in fact when my sister and I both turned up for the probate ritual at her local court, the officials tried to persuade the one or the other of us, to drop out.

However there is an element of family dynamics involved.
If there are 3 siblings who are going to benefit from "the residuary", I would recommend that they are all involved and all have the same information; this solves the 20/20 hindsight expert opinion.
There is nothing worse than the everlasting niggle about a decision that has worked out "wrong". I think most families have one, certainly my neighbour has a situation where the family home was sold at a knock-down price and had it been kept, its site would now be worth perhaps 7 figures.

I hope I have avoided the majority of this problem in the case of my late relative Mr Dog by creating a web email site for him; and giving all the beneficiaries the password.
Every time something happened I would write to the deceased explaining what had happened and sent the beneficiaries a summary. Thus they all got the same message at the same time.
Some of them found the experience decidedly creepy.

For example I flogged off all the shares and claimed back a bit of IHT, but with 20:20 hindsight that modest share portfolio might well be more valuable now if we had kept it.

Don't forget that when most tax payers die, there are likely to be at least two tax years "unreconciled", the one for the year that ended on the previous 5th or April and the one that is part way through when the deceased departed.

If my experience is typical, HMRC works on the "If you don't ask you don't get" principle, so the executor needs to turn up and reconcile the figures for at least those last two tax years. Don't assume that HMRC will do it for you.

"But those files have gone to archive - can't you work out the figures for yourself"

Thinks: "Yes I can, but on the back of my envelope, I think you have made a modest mistake in favour of the deceased".

Says: "Well I suppose I could try".

Thinks: "Another amateur punter - who does not understand how the system works " ?

John.

PS: Another problem that an amateur, close relative, executor faces is the biblical "A prophet is seldom without honour, save amongst his own people."

"Joseph, I've just been to see the rabbi, and he has explained to me how family trusts work - that trust that uncle Eli wants to set up, really for "our" son, could lend me the money for care home fees and then claim it back, when my executor has to sell the business".

"Yes my darling - I thought that I had already explained that as we are not married this was a clever thing to do, seeing as you won't benefit from a transferable percentage of my nil rate band".

"What do you know, you are only a self employed carpenter with a donkey on the firm".