Please help clarify...

mikeywalts

Hi all,

I am a new member so go lightly! Anyway my mother is eligble next year to take one of my dad's pensions ( They divorced then re- married to avoid inheritance tax)
She will get about a big lump sum ( tax free) and £4000 a month.
Question 1 ) Is the monthly sum taxable ? if so what is the percentage?
question 2) if she emigrates to Canada where she is from is it still eliglbe for extortinate U.k tax ?

Also as to my understanding she is the executor of my father's will. My father is alive but he is very funny with money and doesn't talk about it much. He is working but collecting several pensions with at least 2 significantly higher paying then my mothers .
Question 3) Upon my fathers passing she recieves his pension?
question 4) if so does she recieve the full amount ? does emigration make a difference?

Apologies for the long read and thanks to anyone who answers me ,

Mw

atush

1, the LS is i assume tax free, but the monthly payment would be taxed at her highest rate (ie if she pays BRtax, and it wont take her income over 42K then it would be taxed at BR).

2, the income would be taxed in her country of residence for tax purposes

3, she would receive his pension if he has declared her as his beneficiary in his declaration of wishes or if his pension pays an automatic spousal pension. There may be no spousal pension involved therefore she woukld get nothing. If he has a FS pension there most likely is one. Also, if he has other dependents such as dependent children they might get payments instead or along with. All depends on how it was set up, the rules, and his situation re dependents.

4, she would in many cases receive only half hos pension (as many spousal pensions are set at 50%, but you/he/she would have to find this out from his scheme booklet or from the company concerned.

mgdavid

how is it possible for the OP's mother to receive 'one of his pensions' while he is still alive? I thought the spousal pension only triggered upon the pensioner's death?
Secondly, 4000 per month is 48k per year so straight away puts her into the higher rate tax bracket irrespective of any other income.

richbeth

mikeywalts wrote: »

Hi all,

I am a new member so go lightly! Anyway my mother is eligble next year to take one of my dad's pensions ( They divorced then re- married to avoid inheritance tax)

Hi,
sounds complicated ! do you mean they divorced and did a settlement where your mother received one of your dad's pensions in order to reduce his income tax liability and/or allow him to make further pension contributions or avoid going over the lifetime limit ?
R

FatherAbraham

atush wrote: »

2, the income would be taxed in her country of residence for tax purposes

That's not true, in general, because it can be altered by taxation treaties between countries.

For example, under the 1969 treaty between the UK and Austria, national or local government pensions are taxed in the country which pays them, not in the other country where the recipient resides.

Warmest regards,
FA

atush

If you are going to be pedantic, tell us about the treaty with Canada then:D

She'll be going there rather than Canada.

how is it possible for the OP's mother to receive 'one of his pensions' while he is still alive?

I was assuming, perhaps incorrectly, that she got this pension in the previous divorce thru pension splitting maybe?

JoeCrystal

atush wrote: »

If you are going to be pedantic, tell us about the treaty with Canada then:D

Simple enough. Please take the following with a pinch of salt: Here is what the treaty with Canda says on the matter.

2. Annuities arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. However, such annuities may also be taxed in the Contracting State in which they arise and according to the laws of that State, but if the recipient is the beneficial owner of the annuities the tax so charged shall not exceed 10 percent of the portion thereof that is subject to tax in that State.

Simple enough.

But mikeywalts, you ask/speak to HMRC and Canada Revenue Agency if you want to be sure. Tax affairs between countries tend to be complex after all.

I thought I have a look at Canada Tax Rates (a country where you have to file annual tax return) on £4000 per month is C$6266 in Canada so $75,192. There is no personal allowance as far I can see. So she pay 15% on the first $43,561 and 22% on $31,631. So that is federal tax of $13,492. There is also a provical tax rate as well. I like Newfoundland so let use their tax rate. Which is 7.7% on the first $33,748, 12.5% on the next $33,748 and 13.3% on $7,696. This is tax bill of $7839 for your local province. So a tax bill of $21,188 or 28% of the income.

Of course there is a State pension but because it is Canada, there will be no index-linked rise at all.

In this country, an annual income of £48,000 mean 18% income tax payment (thanks to personal allowance) and index-linked state pension.

So... Extortionate UK tax ?? Not compared to Canada so it seems.

Cheers,
Joe