Tax on late mother's pension

Neato

Hi all,

Just looking for some advice. I was sent a letter about 9 months ago to say my late mother had a pension I didn't know about. The firm that holds it recently advised that this would be taxed at 55%. 40% because HMRC classes it as an unauthorised payment, plus an extra 15% because it is the total sum of the pension.

Firstly, for anyone in the know, does this sound correct?

Secondly, is there anywhere I can look to check that these figures do apply? It seems a high amount to be taxed, particularly given the low sum of cash in the pension.

Thanks!

mania112

If you're taking that as a lump sum cash payment, the tax charge is correct.

HMRC state that the death benefits of a crystallised pension (one which is in payment at time of death) the beneficiary will suffer a 55% tax charge on surrender/payment.

Thems the rules unfortunately.

jem16

Neato wrote: »

Hi all,

Just looking for some advice. I was sent a letter about 9 months ago to say my late mother had a pension I didn't know about. The firm that holds it recently advised that this would be taxed at 55%. 40% because HMRC classes it as an unauthorised payment, plus an extra 15% because it is the total sum of the pension.

Firstly, for anyone in the know, does this sound correct?

Presumably you are receiving the benefits of your late mother's pension? If so then yes it's correct if you are planning on taking it as a lump sum.

Secondly, is there anywhere I can look to check that these figures do apply? It seems a high amount to be taxed, particularly given the low sum of cash in the pension.

Thanks!

http://www.pensionsadvisoryservice.org.uk/occupational_pensions/death_benefits

Neato

I haven't been given an option to take it any other way?
Could I request this? It hardly seems worth the instalments since the amount is less than £500...but then taking 55% of the amount makes the 'lump sum', significantly less 'lumpy'.

Hi, I'm not receiving any benefits from the pension. I wasn't aware she had one until I received a letter from the firm it was paid into.
So would I be correct in assuming I could leave the money with them and then draw it as my own pension? Or could I take this cash and put it into my own pension?

Thanks for the site! I'll go and have a look.

jem16

Neato wrote: »

I haven't been given an option to take it any other way?

I believe it depends on the type of pension your mother had. If she was receiving an annuity, then you don't have any choice I believe.

If it was a drawdown arrangement, you would have a choice.

dunstonh

Some annuity providers will pay the guarantee period as a lump sum rather than income. This is reflected in their annuity rate and part of the decision process your mother would have gone through when she bought the annuity.

One of the biggest annuity providers uses this method as default. However, many others offer it as well.

As the option is priced into the annuity rate, you would not expect to be offered an alternative method of payment as the decision was made at point of sale and priced accordingly.

The 55% figure is correct but its not right to refer it to an unauthorised payment as it is not. It is the same rate as an unauthorised tax charge but it is actually called the special lump sum death benefits charge.

http://www.hmrc.gov.uk/manuals/rpsmmanual/RPSM10106050.htm

There are other scenarios that could apply here. We dont have a lot to go on. So, I have picked the most likely with this response but add the caveat that if it is not an annuity, then the terminology/reasons will be different.

The actual 55% figure is not that high. It more or less equates to taking back the tax relief that was obtained. Plus, the payment is outside of the estate and not subject to IHT at 40%. As you could put it straight back into a pension yourself you could get tax relief on it and gain the tax benefits over the long term.