Widow and Pension

Dazed_and_C0nfused

Richie7 said:

xylophone said:

Now the letter states that the tax can be claimed back. Am I correct in thinking however that she can only claim £500 back? Because of the new pension she will be receiving that takes up most of her personal allowance?

I think that this is trivial commutation of a small dependant's pension.

See https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm073700

How a trivial commutation lump sum death benefit is taxed

If your mother's only other income is SP, the 20% tax taken from the TC payment will mean that she has been overtaxed for the year - see above re reclaim.

Thanks for that. 

I think I might have got this wrong. 

My mum isn't a basic rate taxpayer, as her only income is the SP. So am I right in thinking she can claim back the £500 or so, then the additional £300 she gets taxed on at 20% (the £300 being the amount that takes her over the threshold into basic rate).

I get so damn confused over how these things work, lol.

Not sure where you are getting your £500 & £300 figures from?

This is from an earlier post.


she would be receiving £232 per week as of Monday

Basically they are offering my mum a small spouse's pension now of £426.72 per annum. Or a lump sum to close the policy of £3,213 which has had 20% tax deducted (£4,017 Gross).


So let's say her State Pension in this tax year is £11,760 (£232 for 50 weeks and £80 for the first 2).

Add in the £4,017 and her taxable pension income would be £15,777.  With Personal Allowance of £12,570 she would be paying basic rate tax on £3,207.

So tax due £641.40 and tax deducted of £803.40 gives a refund of £162.

However I suspect that the £232 may apply for the whole tax year which would mean the refund would be more like £100.

If your dad died in the current tax year it's likely that you or your mum (as executor) could apply for Marriage Allowance on behalf of your dad.  This would mean your mum would get an additional tax refund of £252 if she took the lump sum option.

xylophone

My mum isn't a basic rate taxpayer, as her only income is the SP. 

Your mother's SP is "taxable income" - it is just that it is lower than her Personal Allowance  (£12,570) so that she pays no tax.

You  would need to add the gross amount of the commutation lump sum to the total annual  state pension  to establish her liability for the year.

For example, suppose the total SP amounted to  £12,000 a year and the gross commutation lump sum was £4000.

This would mean that  total taxable income for the year would be £16,000.

Deduct PA and the amount liable for tax at basic rate would be £3430.

Therefore £686 would be payable in tax.

However, the pension company would have deducted £800 in tax before paying out the commutation lump sum.

Therefore there would have been an overpayment of tax and £114 could be reclaimed from HMRC.

Richie7

Thanks for that help there.

I still keep finding different things on this. For example when my dad passed it was last tax year. And when he died my mum was only receiving £80 per week, which is £4160 per annum. 

The Pension company have backdated the paperwork, as they've already asked for the payment back that my mum received whilst we were trying to sort the funeral etc. So the offering of the lump sum should surely be based on what her circumstances were when my dad died. As if they were offering it to her on the day he died. That's how other companies are approaching the issue, like one of his stocks and shares ISA's are applying the value of the ISA on the day he died.

I notice that Marriage Allowance can be backdated to to 2018.

I'll have to enquire with the HMRC anyway. I'm not trying to dodge tax, I just don't want her paying if she shouldn't be.

Dazed_and_C0nfused

I notice that Marriage Allowance can be backdated to to 2018.

That would be of no use to her though as she wasn't paying any tax. 

But if she hadn't previously applied for Marriage Allowance and your dad was paying tax then she could apply now and there is likely to be a refund due to the executor of your dad's estate.

If you find anything of your dad's showing a tax code ending M then that will mean she has previously applied.

Richie7

I've also just randomly come across this too.

100,000+ women missing out on £1,000s of state pension: how to reclaim - MSE (moneysavingexpert.com)

And I think this also applies to my mum by the looks of it.

molerat

Richie7 said:

I've also just randomly come across this too.

100,000+ women missing out on £1,000s of state pension: how to reclaim - MSE (moneysavingexpert.com)

And I think this also applies to my mum by the looks of it.

That is all about not receiving the correct cat B pension.  How much exactly was her pension last year ?  £85.11 was the correct 60% value.

xylophone

£85.11 was the correct 60% value.

The Cat B pension was £85 in the year 2022/23.

https://www.gov.uk/government/publications/benefit-and-pension-rates-2022-to-2023/proposed-benefit-and-pension-rates-2022-to-2023

OP referred to Mother as having a pension of "around" £80 a month (later corrected to a week!) so I'm pretty sure that she was getting a full Cat B based on her husband's contributions.

If so, then the link cited by OP  indeed is not relevant to his mother's situation.

I've also just randomly come across this too.

100,000+ women missing out on £1,000s of state pension: how to reclaim - MSE (moneysavingexpert.com)

And I think this also applies to my mum by the looks of it.

Once she had advised DWP of her widowhood, her SP increased to a full Basic based on her late spouse's contributions plus the relevant percentage of his SERPS/S2P/Graduated Pension.

With regard to calculating Mother's tax liability, the OP needs to proceed as previously indicated.

xylophone

OP, you can check your mother's SP for 22/23 from the DWP statement of increase in benefits she would have received around March 2022.