Two annuities, too much tax

Vortigern

My father-in-law (age 80+) has two small annuities with the same pension company. His total income from all sources is less than his personal tax allowance. HMRC have given him a tax code. The pension company has applied this code to the smaller annuity (making it tax-free) but have used tax-code BR against the larger annuity meaning that he has been paying tax unnecessarily for many years.

Q1. Should the pension company have used the tax code against the combined total of these 2 annuities, or should f-i-l have asked HMRC to issue 2 tax codes to the same pension provider? (I know HMRC would have to issue split codes if there were 2 different pension providers)

Q2. What are the chances of claiming back for more than 4 years?

Q3. What should f-i-l do next?

Thanks in anticipation of your input.

Lokolo

Phone HMRC and get them to split his allowance. You can usually split your allowance.

xylophone

What should f-i-l do next?

Contact HMRC immediately.
http://www.hmrc.gov.uk/incometax/check-multiple-codes.htm
http://www.hmrc.gov.uk/incometax/overpaid-thro-pension.htm

jem16

Vortigern wrote: »

Q1. Should the pension company have used the tax code against the combined total of these 2 annuities, or should f-i-l have asked HMRC to issue 2 tax codes to the same pension provider? (I know HMRC would have to issue split codes if there were 2 different pension providers)

If both pensions are paid separately (even though from the same provider) then a separate tax code is needed. BR is a tax code and normally used for 2nd incomes so perfectly acceptable to use this code.

However in your father in law's case splitting the personal allowance would probably be best.

Q2. What are the chances of claiming back for more than 4 years?

Absolutely nil I'm afraid.

Q3. What should f-i-l do next?

Thanks in anticipation of your input.

Contact HMRC and ask for the codes to be split and claim his refund for that tax years that he still can claim for.

Vortigern

jem16 wrote: »

If both pensions are paid separately (even though from the same provider) then a separate tax code is needed.

Yes, the 2 pensions are paid separately, on the same day each month. There are separate P60's which is what drew my attention to the situation. Not sure why the pension co didn't amalgamate them like they did with his other section 226 policies - or why they used his tax code against the smaller pension rather than the larger.

BR is a tax code and normally used for 2nd incomes so perfectly acceptable to use this code.

BR is the code for Basic Rate. Perfectly acceptable to use this where the personal allowance has been used up elsewhere!

Contact HMRC and ask for the codes to be split and claim his refund for that tax years that he still can claim for.

I'll help him to do this.

Thanks

CLAPTON

presumbaly he also receives the state pension which although is not taxed at source is taxable

what are his incomes?

Vortigern

CLAPTON wrote: »

presumbaly he also receives the state pension which although is not taxed at source is taxable

what are his incomes?

State Pension £5409 pa
Annuities £1400 pa gross
BS interest ~£42 per month gross

His wife's pension is £3195 pa. Wife has no other income, but BS account is joint with R85 registered against wife's half but paradoxically not against his (until later this week!)

In short, they don't have enough income to be paying tax, but have just too much income to qualify for the guarantee element of Pension Credit.

CLAPTON

yes, his total income is less than tax allowance.


so as Jem says tell HMRC to split his tax codes between the two annunities and get a R85 filled in for him too.

xylophone

Just a thought but are they eligible to claim pension credit?
http://www.ageuk.org.uk/money-matters/claiming-benefits/pension-credit/

Vortigern

xylophone wrote: »

Just a thought but are they eligible to claim pension credit?
http://www.ageuk.org.uk/money-matters/claiming-benefits/pension-credit/

Thanks for the link. I'd already investigated Pension Credit; in fact that was what led me to discover the overpayment of tax on savings and pension. I was hoping they would qualify for the guarantee element of PC, which would also have reduced their council tax. Unfortunately they have just enough income to disqualify themselves from the minimum pension guarantee. They might just qualify for the savings credit part of PC but this would be worth less than £1 per week.

I'll be taking f-i-l to the building society and getting him to ring HMRC later this week.

jem16

Vortigern wrote: »

BR is the code for Basic Rate. Perfectly acceptable to use this where the personal allowance has been used up elsewhere!

I agree which is why I also said this;

jem16 wrote: »

However in your father in law's case splitting the personal allowance would probably be best.

The point I was trying to make was that HMRC will always use BR or D0 for a 2nd income until they are made aware of reasons not to. Usually you have to ask them to split the tax code.