Widowed mother, HMRC problem

edited 30 November -1 at 1:00AM in Pensions, Annuities & Retirement Planning
6 replies 880 views
SmookSmook Forumite
12 Posts
Eighth Anniversary Combo Breaker
Hi,

Recently, my father passed away.

Amongst his finances was a private pension he took out. It was initially a cash sum payout, but he changed it to an income draw down plan and started to receive monthly payments from it.

As said, he passed away, and payments wee stopped once the company was informed via solicitors, as is the norm.

Form what I/we can gather, the remaining sum should be part of his estate, and tax free.

HMRC are saying it is eligible to be taxed at 55%, as they state it was the main aim to provide a cash sum instead of a draw down. It was changed due to my fathers failing health, and he would have continued to draw it until it ran out, in approximately 14 years time.

My question is, whe does my mother stand on this? Is there some sort of appeal process, or is it down to HMRC to decide, seemingly on a whim, who pays tax on a bequeathed pension and who doesn't.

It's not the money, it's the principle of the situation. The money has already been earned, and tax paid on it, and now is being taxed again?

Mums' solicitor seems to just be going with it, I'm guessing as its no real concern to him, just to sort the estate and be done, but she is upset by this, and asked me to look into it.

Any help would be appreciated, as I really have no clue how to go about approaching this.

Thanks,

Luke

Replies

  • sleepless_saversleepless_saver Forumite
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    Smook wrote: »
    Hi,

    Recently, my father passed away.

    Amongst his finances was a private pension he took out. It was initially a cash sum payout, but he changed it to an income draw down plan and started to receive monthly payments from it.

    As said, he passed away, and payments wee stopped once the company was informed via solicitors, as is the norm.

    Form what I/we can gather, the remaining sum should be part of his estate, and tax free.

    HMRC are saying it is eligible to be taxed at 55%, as they state it was the main aim to provide a cash sum instead of a draw down. It was changed due to my fathers failing health, and he would have continued to draw it until it ran out, in approximately 14 years time.

    My question is, whe does my mother stand on this? Is there some sort of appeal process, or is it down to HMRC to decide, seemingly on a whim, who pays tax on a bequeathed pension and who doesn't.

    It's not the money, it's the principle of the situation. The money has already been earned, and tax paid on it, and now is being taxed again?

    Mums' solicitor seems to just be going with it, I'm guessing as its no real concern to him, just to sort the estate and be done, but she is upset by this, and asked me to look into it.

    Any help would be appreciated, as I really have no clue how to go about approaching this.

    Thanks,

    Luke

    On the whole HMRC have rules not whims! Anyway it's now 55% for an income drawdown fund. The money in the fund would have attracted tax relief in the first place so it hasn't been taxed twice (though I agree it seems a high %).

    "For deaths after 5 April 2011, any lump sum death benefit paid from an income drawdown fund (or after age 75 from unused funds) will be taxed at 55% (up from the 35% that currently applies under USP). Lump sums paid on or after 6 April 2011 as a result of a death in USP before then will still be taxed at 35%."

    Source:http://www.moffatts.com/blog/financialnews/new-income-drawdown-rules-from-april-2011/
  • LintonLinton Forumite
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    Why cant your mother continue taking the drawdown income? For normal pension drawdown the 55% tax only applies if the money is taken outside the pension as a lump sum. Dependents need not do that. Or was your father's scheme something unusual?
  • SmookSmook Forumite
    12 Posts
    Eighth Anniversary Combo Breaker
    Thanks for the help everyone!

    I understand it isn't a whim, but didn't know how the tax was applied, thanks for clearing that up.

    As for continuing to draw the pension, from reading above links, it's still liable to the 55% tax as it was initially a lump sum - is this correct?

    Once again, thanks for taking he time to reply :)
  • xylophonexylophone Forumite
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    I am just wondering - did your late father pay a pension commencement lump sum into a SIPP and has the arrangement somehow fallen foul of the pension recycling rules?

    I say this because you seem to be indicating that even if your mother continued with drawdown, HMRC have advised that she would still be liable to a 55% tax charge?
  • SmookSmook Forumite
    12 Posts
    Eighth Anniversary Combo Breaker
    Hi,

    I have no idea of the details at this time, but will find out and let you know.

    Thanks for the help - I'm new to this and really appreciate it!
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