Does this sound right?

Wellgood

A few years ago Mum got passed down my dads pension pot tax free as my dad was under 75 when he passed away. Recently my dads old employer contacted my mum to say they had undercalculated his pension pot when he transferred out and was owed another 12 k. They have now paid this to my mum to her bank account but basic rate tax has been deducted and they have also issued my mum a p45
Q1) Should tax have been deducted as normally she can draw down tax free?
Q2) why did they send a P45
Thanks for any help you can give

dunstonh

Q1) Should tax have been deducted as normally she can draw down tax free?

Is the amount within her personal allowance?

Q2) why did they send a P45

You always get P45s when you finish payments via payroll.

squirrelpie

Is it normal to pay an underpayment directly to a person rather than into the transferred pension?

Wellgood

In answer to dunstonh It is not within her personal allowance but normally all money drawn from the pension pot is not taxed due to the under 75 rule. 

in answer to squirrel pie  - maybe that is the issue. Not sure my mum had a choice in the matter!

Wellgood

Maybe it’s because my dad transferred out of final salary company pension scheme to SIPP before he passed away. So they had no choice but to pay this underpymt into bank account of my mum. Still think it should not have been taxed?

QrizB

Wellgood said:

Maybe it’s because my dad transferred out of final salary company pension scheme to SIPP before he passed away. So they had no choice but to pay this underpymt into bank account of my mum. Still think it should not have been taxed?

Is your mum under 75? If so, she can pay the £12k back into a pension herself and get tax relief (admittedly, it might take 4 years unless she has earned income).

xylophone

A few years ago Mum got passed down my dads pension pot tax free as my dad was under 75 when he passed away. Recently my dads old employer contacted my mum to say they had undercalculated his pension pot when he transferred out and was owed another 12 k.

When your father transferred from one scheme to another, the value of his pension would have been calculated and that sum sent to the new provider.

I cannot see that at that time, any tax would have been payable.

It would appear that the sum transferred was under calculated to the tune of £12,000.

If it had been paid at the  correct time,  no tax would have been payable and it would have formed part of the sum remaining in the pension at the time that your mother inherited it.

I do not understand the issue of a P45.

https://www.which.co.uk/money/tax/income-tax/tax-codes-paye/what-is-a-p45-aTvBL1X0yX7Y

Perhaps your mother could write to HMRC to clarify the matter?