Advice please regarding penalties for failure to disclose income

gterr

Looking for any advice please:

I have just found out that my 69 year-old stepfather has failed to notify HMRC that he's been in receipt of an occupational pension for the last 9 years. There will be tax consequences: the occupational pension plus his state pension will have taken him over the personal allowance threshold, probably for every one of those nine years.

There are mitigating circumstances: he is German, though resident in the UK, and has very limited ability to understand written English. My Mum did all the household paperwork, but she had a stroke some years ago and vascular dementia after this, and died a month ago. I'm helping step-dad sort out her estate, which is why I've just come across this omission. The occupational pension comes from his previous employers in Germany and is paid directly into the bank. There will have been no intention to avoid tax: it's just that it will never have occurred to him that money coming from Germany would need to be disclosed to HMRC. And there's been no reason for HMRC to have sent him out a tax return, so it's never been spotted.

I guess it's best to contact HMRC and explain. How best to do this? What will be the likely outcome? Will they want all the tax due from previous years? Plus a penalty payment on top? Would there be any scope for some discretion? This is the last thing he wants on top of his bereavement.

Thanks for your time.

Savvy_Sue

Depending on how much tax is involved, it may be worth involving an accountant to put his case for him. Can you post up how much the occ and state pensions each are? Even if just for the last year. Someone could then do a rough stab at what he might owe.

Also I don't know what the tax position is in Germany, is it possible that he could be due to pay tax in Germany rather than here?

The penalties will be less if he 'confesses' than if he's found out.

Savvy_Sue

BTW, I'm sorry for your loss. It's the last thing you want on top of a bereavement too ...

antonic

So sorry to hear about your sad loss and as usual Savvy_ Sue has done an excellent job covering all the relevant points BUT I just have one addition to make.

If your step-dad wants you to ask on his behalf with HMRC then he will need to sign a letter of authority or a 64-8 (which can be downloaded from here : http://search2.hmrc.gov.uk/kb5/hmrc/forms/view.page?record=cZuAgB_KEpk&formId=14#forms) otherwise they wont speak to you on his behalf, for data security reasons.

I would recommend this as you say his English isnt to good.

Good luck and post back if you need more help.

zzzLazyDaisy

Have you checked to see if the occupational pension has tax deducted at source before it is paid to him? If so there should be a set-off for this.

http://www.hmrc.gov.uk/international/dta-claim.htm

gterr

Many thanks for the helpful replies.

His occ pension is approx £9300 per year (paid in Euros, so amount depends on exchange rate). His UK State Pension is £4316 per year. He's 69, so I guess his personal allowance would be £10500.

I don't know if any tax is deducted at source in Germany, but I can look into this.

I will definitely notify HMRC. Need to do this quickly, because DWP Bereavement Service think his State Pension may increase on the basis of my mother's previous entitlement. This has triggered a form from HMRC asking for general income into, which we are sitting on until we've heard back from DWP.

Do you think HMRC will ask for all the unpaid tax from the previous 9 years, plus a penalty? If so he will be in financial hardship. (He has already 'lost' half of the joint savings under the terms of my mother's Will. There will be little left in the bank.)

I took out Power of Attorney for him last year when my mother went into a care home. I guess that might help, though with regard to HMRC it might be quicker to use their mandate/authorisation form?

Many thanks for your time.

zzzLazyDaisy

gterr wrote: »

(He has already 'lost' half of the joint savings under the terms of my mother's Will. There will be little left in the bank.)

Just to clarify - any money in a joint account passes automatically to the surviving account holder. It does not fall into the estate and cannot pass under the will.

gterr

zzzLazyDaisy wrote: »

Just to clarify - any money in a joint account passes automatically to the surviving account holder. It does not fall into the estate and cannot pass under the will.

It seems that this is not so in this case, I'm afraid. My mother placed her whole estate in trust, with my stepfather having a life interest in her share of the house and in her 'moveable' estate (Scotland). The bank will allow my stepfather to continue to use the joint accounts (which have now been changed to a single name), but under the terms of trust in her Will, her half of the money must be placed in a trust account. My stepfather receives the interest, but cannot touch the capital. Something similar happens with the house. He can remain there for as long as he wishes, but once he moves out the house must be sold and 'her half' goes elsewhere. Solicitors are involved.

Believe me, all of this is a nightmare. None of us knew anything about the terms of the Will, and none of us wanted this to happen to my stepfather, who is anyway grieving and pretty much suicidal because of the loss of his wife. Now I've found his tax affairs are not in order. I dread telling him. That's why I'm trying to find out just how bad things are before I explain things to him to prepare him as best I can for what might happen.

Savvy_Sue

gterr wrote: »

I took out Power of Attorney for him last year when my mother went into a care home. I guess that might help, though with regard to HMRC it might be quicker to use their mandate/authorisation form?

Is the PofA registered? If it is, then in theory you should be fine. In practice - as I'm sure you've found - organisations are more or less clued up on how they work, and sometimes individuals within organisations are completely unclued ...

zzzLazyDaisy wrote: »

Just to clarify - any money in a joint account passes automatically to the surviving account holder. It does not fall into the estate and cannot pass under the will.

Agree. However, I suppose if Mum's will said "I want half the money in the X joint account to go to Fred", the executors might feel morally obliged to do that? Don't know ... but if there's a way of getting half that sum to Fred WITHOUT touching the joint a/c I'd say that was a better way, even if it disadvantages other beneficiaries. Note I have no idea what the legalities are: was the will drawn up professionally? If so I'd approach the will write and query that.

Having said that, how much are we talking about? It could actually be to your stepfather's advantage, as he may be entitled to more means tested benefits.

gterr

Savvy_Sue wrote: »

Is the PofA registered? If it is, then in theory you should be fine. In practice - as I'm sure you've found - organisations are more or less clued up on how they work, and sometimes individuals within organisations are completely unclued ...

I should perhaps have pointed out that we are in Scotland. Some legal stuff is different up here. The PoA is a "Continuing Power of Attorney" and was registered when first drawn up. It allows me to help, but doesn't prevent stepfather from running his own affairs when able. In my experience, though, it can actually take longer, and be messier, trying to achieve things with the PoA than just getting some other type of mandate done.

With the Will we have this messy situation where stepfather is executor and trustee, but I'm his attorney so acting for him in these matters (informally at present). May have to formalise this in order to set up the trust account.

Agree. However, I suppose if Mum's will said "I want half the money in the X joint account to go to Fred", the executors might feel morally obliged to do that? Don't know ... but if there's a way of getting half that sum to Fred WITHOUT touching the joint a/c I'd say that was a better way, even if it disadvantages other beneficiaries. Note I have no idea what the legalities are: was the will drawn up professionally? If so I'd approach the will write and query that.

Will is valid, though was drawn up in England in 1983. I passed it straight to my (Scottish) solicitor because of the complication of the trust. He is completely clear that the trust applies to the whole of Mum's estate, and that half of the 'moveables' (everything except property and land), or the monetary value of such, must be set aside in accordance with the trust requirements. We also have the complication of Scottish 'Legal Rights', wherein the children may claim one-third of the moveables, irrespective of what the Will says. I shall not claim LR, but my brother may well. The solicitor seems completely clear that the joint account money does not automatically pass to my stepfather. Are you sure he's wrong?

Having said that, how much are we talking about? It could actually be to your stepfather's advantage, as he may be entitled to more means tested benefits.

Before we address the tax problem, his share of the cash is about £12,000. If he loses, say, £7000 in back tax this will leave him with about £5000. But his annual income from occ pension and State Pension will be at least £13616. I was guessing that would put him beyond the income level at which Pension Credit might be paid.

Any idea about the amount of back tax stepfather will have to pay?

Thanks for your time.

zzzLazyDaisy

Okay, I get the trust issue.

But it is worth getting a second opinion re the joint account.

EDIT - it seems that the law is different in Scotland http://www.hmrc.gov.uk/manuals/ihtmanual/ihtm15054.htm

But this only applies to bank accounts that come under scottish law. You said that the will was made in England, so it is worth checking whether the joint account is held at an English branch/bank. It is often the case that when people change addresses, the account remains with the originating branch, and the individual just uses the branch local to them. You can check this from the sort code.

The other option (depending on who the other beneficiaries are, and whether they agree) is for the beneficiaries to agree to a variation of the will. In effect this changes the will to whatever the beneficiaries feel is just and equitable, so it would be possible for your stepfather to inherit a larger share of the money. But all beneficiaries must agree to this.

I am so sorry for your loss, you don't need this hassle and upset right now.