Income tax on guaranteed pension/annuity payments after death

florida_mousie

I am an executor for my late sister. She had a pension from Aviva. They tell me that the contract had a minimum guaranteed period of 5years and there was 6.5months left at the date of death. It seems that we have to have this money paid to one of the executors and  that person will pay income tax on the payment. From what I can find out this is correct but I can’t find the legislation that covers this or any guidance on GOV.uk. The total amount is about £2K. Can anyone help with the following questions:
1. Does the gross or net amount go into the estate? (If the answer is the gross amount won’t the executor be out of pocket?)

2. As there are four beneficiaries one of which is a charity, in effect one beneficiary is paying income tax against their National Insurance number on behalf of the others as the net amount is only partly their income. Is that right?

As you can see this issue is confusing me a lot so any help would be appreciated. Thank you.

xylophone

Is the  annuity income  due to the estate rather than to an individual executor?
https://www.lawskills.co.uk/articles/2019/04/income-tax-on-income-received-during-the-administration-of-an-estate/

Telephone HMRC to clarify?
https://www.gov.uk/government/organisations/hm-revenue-customs/contact/bereavement-and-deceased-estate

p00hsticks

Pensions usually fall outside the estate - if the pension trustees are determining who is to get the money (possibly guided by an expression of wish form and/or the contents of the will) then I don't believe it should be included in the estate at all. And in that case it wouldn't be counted as part of the recipients entitlement under the will (if any), as that is completely separate.

So I think you need to clarify with the pension company if the payment is into or outside of the esate

florida_mousie

Thanks for the replies. Aviva have said that we have to decide who is going to receive the payment and they have provided a value for inheritance tax purposes which appears to be the gross amount. This implies that at least the net amount, after the tax has been taken off under the executor’s National insurance number, goes into the estate funds before distribution to the beneficiaries? Anyway I’ll check out the guidance you’ve pointed me to. I did mention the guaranteed pension payment to HMRC on the phone but they didn’t seem to know what I was talking about - might need to try again. I asked on this forum as I thought this sort of situation wasn’t unusual - but surprised that a google search doesn’t bring up any public guidance - maybe I’ve used the wrong search phrase 😀.

xylophone

I notice that  Aviva have produced this

https://www.aviva.co.uk/retirement/help-and-support/what-happens-to-your-pension-when-you-die/

You die after 90 days but within your guarantee period. Payments will continue until the end of the guarantee period, these will be paid to your estate or dependant on the policy

Was a dependant named?

sheramber

It appears your sister did not nominate a  beneficiary/ies for her annuity.
It is correct that whoever receives the money pays tax at  their marginal rate on it.

Firstly, Can you nominate the payment to go to   the estate? I would expect tax at basic rate would be deducted from it if it did.

Alternatively, can you nominate those who are beneficiaries so they each receive their share according the will. In that case each person would pay tax according to their marginal rate. ( your sister could have nominated more than one beneficiary with the percentage allocated to each)