Back dated payments from a lost pension, can these typically be ascribed to 2 tax years?

justcheckin

Hi,

I've just managed to find a lost pension for my mum, which is great news as she is unwell and has very little income.

She will receive an annual pension of just under £1k and a TFLS of £3k.

However the missing years she was not in receipt of the annual income are now being backdated (£14k).

I am not looking a gift horse in the moth, and it's fantastic news, but had she received the money annually, she would not have paid any tax on it, but a lumpsum of £14k plus her small other income, she now will.

Does anyone know if the administrators will have any ability to make the backdated payment over 2 tax years (19/20 and 20/21)? 

Or is there something else she can legally and correctly do?

Many thanks.

justcheckin

PS the pension is a Teachers pension, 1/80ths scheme with just under 6 years qualifying service.

xylophone

See https://www.gov.uk/hmrc-internal-manuals/self-assessment-manual/sam121160

Payments of pension arrears covering a number of tax years are becoming increasingly common. For example, some former part-time employees are being given rights to retrospective membership of occupational pension schemes. As a result, those former part-time employees who have since retired may become entitled to a pension or an increased pension. Many will be entitled to arrears of pension for the period from their retirement date.

Taxable pension is the amount to which the pensioner is entitled in the tax year. A payment of arrears of pension may be a substantial sum covering a number of tax years and the statutory (accruals) basis should thus be applied on request where it is to a taxpayer’s advantage.

Further guidance on this point is available at SE74101 (2002/03 and earlier years) and at EIM74101 (2003/04 and later years).

  The arrears are chargeable for the year or years of assessment to which they relate.

Dazed_and_C0nfused

But that is only done by you asking HMRC, as far tas I know it isn't something the pension payer would facilitate.

xylophone

But that is only done by you asking HMRC, as far tas I know it isn't something the pension payer would facilitate.

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim74103

Arrears of pension

If a pension provider discovers a long-standing underpayment of pension, the underpayment is calculated and paid in a single sum. The provider is required to operate PAYE on the lump sum, which may give rise to higher rate liability for a pensioner who is usually a basic rate taxpayer. The pensioner should contact the tax office and supply a schedule showing the years to which underpayments are attributable. HMRC will spread the payments back over the relevant years and recalculate liability. Underpayments in the earlier years may be set-off against the resulting over-payment in the year of the lump-sum payment.