Pension confusion

Samjam1

My 90 year old grandmother has been written to by her late husbands pension provider, they are selling up to an insurance company. They have told her that if she wishes to continue receiving her widows pension she does not need to do anything, however they have said that she can be paid out is she would like to do so. They have told her that there is just over 5k in the pot and after tax she would get just over 4k. This seems to me like a huge amount of tax to pay for someone who lives on her state pension? Can anyone advise what would be the best steps to take? We do not need to respond until the 26th March.
Many thanks 😊 🙏 Nici

dunstonh

They have told her that there is just over 5k in the pot and after tax she would get just over 4k. This seems to me like a huge amount of tax to pay for someone who lives on her state pension?

£1000 tax is 20% of the amount.   So, they are taxing it assuming there is no personal allowance left over.   

So, does she have any excess personal allowance?  if no, then its correct.  If yes, then she can notify HMRC who will refund the difference.

Albermarle

These type of one off payments are taxed automatically , whether it is correct or not .
If your Mum has only the state pension income as income . Then subtract the annual amount from the current personal allowance of £12500. This will be the amount she can receive without paying tax on it . If this figure is less than £5K then she will still have to some tax but not as much as £1000. The difference can be easily claimed from HMRC ( Form P53  ) and they will send a refund.
Of course she may be better to just continuing to take the pension . It depends on how long she might live,  which of course is something nobody knows .

xylophone

Google  Spotlight

 Death benefits: taking small dependant’s pensions as a lump sum 

 When can a trivial commutation lump sum death benefit be paid? 

If your partner died on or after 6 April 2011 then a trivial commutation lump sum death benefit can be paid whatever their age was when they died. There is no time limit for making the payment. You can commute a dependant’s pension that is just about to start or one that is already being paid. 

Who can be paid a trivial commutation lump sum death benefit? 

The person who was due to be paid the dependant’s pension should get this lump sum. 

Is a trivial commutation lump sum death benefit tested against the lifetime allowance? 

No. 

How is a trivial commutation lump sum death benefit taxed? 

The whole lump sum is taxable as if it was part of your income. The pension scheme administrator should deduct the tax from the lump sum payment before it is paid to you. 

This seems to me like a huge amount of tax to pay for someone who lives on her state pension?

https://techzone.adviserzone.com/anon/public/pensions/Guide-triviality-small-pots

For the taxable part of any commuted lump sum payment, the scheme administrator must deduct any income tax under the PAYE procedures:

• Where the lump sum payment is in respect of a pension already in payment, it should be possible to use the PAYE code already in operation.
• Where this is the first payment, the basic rate (BR) tax code is used.

If this results in an overpayment of tax, the individual can reclaim the overpaid amount using HMRC form P53