Receiving Widow's State Pension and Share of Husband's Work Pension Untaxed

BR5500

My father recently passed away and my mother now receives a state pension and a small share of my father's work pension.

Looking at the records, it seems as though my mother's share of my father's work pension has always been taxed in the past even though my mother's income was well below the £12500 threshold in my father's lifetime.

Moving forward, my mum will now receive a monthly state pension of £202 (which I assume is untaxed) and the share of dad's work pension is approx £70 a month - as I say it appears that this payment is already taxed - how do I ensure that this payment isn't taxed in future - do I contact the pension provider or HMRC?

This must sound a daft question but is there an easy way to check her state pension isn't already taxed? 

Finally, it is likely that my mother's interest from savings may push her over the £12500 limit, I understand that £1000 can be earned in interest annually tax free but if her total income ends up being in excess of £12500 due to interest earnings how is this reported? Will she have to fill out a self-assessment tax return?

I'm just a bit concerned that she will be paying tax on a small pension incorrectly - in simple terms am I right in saying, the state pension is around £9700 annually, the company pension is £840 annually making a total of £10540. So if she receives say £5000 a year in interest (it probably won't be this much just using this as an example), the first £1000 of the interest isn't taxed, so her total interest income would be £4000 potentially taxable plus the £10540 which is £14540 so would she need to pay tax on £2040 and would this need to be reported and paid through self-assessment?

I'm sure I once read that only those receiving over £10000 in interest annually had to fill out a self-assesment but I'm not sure if this is correct? There's no way my mother would ever receive £10000 a year in interest, her interest income will dwindle as she will need to use her capital to survive.

Greatly appreciate any help - I'm sure I've even read somewhere that interest doesn't have to be declared if a total income is below £18k annually but I doubt this is true!

Many thanks for your help

BR5500

My apologies the above should have read "my mum will receive a weekly state pension of £202 (which I assume is untaxed) NOT MONTHLY!!

Is there anyway of editing a post once it is posted?

Thanks again

Brie

State pension isn't taxed.  The whole burden of tax will fall on the work pension which will be issued with a tax code that includes the SP. 

If she is receiving a lot of interest (lucky woman!) then she may have to submit a self assessment.  I've done one for the first time this year and it was relatively easy when circumstances are simple.

BTW - sorry for your loss.  Always too much to sort out.

molerat

£202 SP per week = £10504.  Her tax code for the other pension will be reduced by the state pension amount so £12570 - £10504 = £2066 to set against that pension.  She can earn £5000 in interest on top of her personal allowance then another £1000 on top of that.  If the company pension is £840 that leaves £1226 + £5000 + £1000 available for interest.  As you correctly stated, SA is only required if interest is >£10K.

You state that she has been paying tax on the pension ?   What tax code has been used on it ?  Does she have access to her on line tax account ?

Is she a pre 2016 pensioner now receiving a state pension based on your father's contributions ?

Keep_pedalling

Your mother would have received none of his pension while he was alive, the whole pension would be his income alone. 

BR5500

Many thanks for the help, it is very much appreciated. It is still in the very early stages and was totally unexpected to put it mildly! He was easily by far the healthiest of the 3 of us so questions will be asked but I have to sort out the basics first!

I definitely need to work out exactly how much mum will earn in interest savings asap but just reading above, am I correct in reading from molerat's post that she can earn £6000 a year in savings before having to pay tax on this interest? I didn't realise this before.

It's good to hear that SA is only required if the interest is over £10k - I can 100% say without any doubt now that her interest will never exceed this unless a lottery win is involved but we've given up on our regular lottery numbers as frankly great wealth would be meaningless without my father.  

If, for argument's sake, she ends up receiving £6500 in interest initially, how will the £500 a year be taxed? Is this automatically taxed? It's all a new world to me so I've always incorrectly assumed that all tax is declared and paid through SA.

And thanks for confirming Keep_pedalling that the whole income was previously received by dad so was taxed - only very recently I had a random conversation with dad about how mum's share (for want of a better description) was taxed previously but he thought that was correct.

molerat

To work out how much interest she can earn you need to add £12570 + £5000 + £1000 = £18570 then deduct her total income from other sources - state pension & co pension etc. Any income above her personal allowance eats into that first £5000. If her interest does run into a taxable amount then once HMRC have received the data from the banks they will adjust the tax code for the following year to claim the tax.  So for 23-24 they will receive the data in summer 24 and adjust the 25-26 tax code. in If they cannot claim the tax that way - tax can only take half a gross payment which may not be possible with a small income stream - so with a  they will issue a simple assessment, basically a bill, to pay the tax.

edited to correct tax year, oops

Dazed_and_C0nfused

molerat said:

To work out how much interest she can earn you need to add £12570 + £5000 + £1000 = £18570 then deduct her total income from other sources - state pension & co pension etc. Any income above her personal allowance eats into that first £5000. If her interest does run into a taxable amount then once HMRC have received the data from the banks they will adjust the tax code for the following year to claim the tax.  So for 23-24 they will receive the data in summer 24 and adjust the 24-25 tax code. in If they cannot claim the tax that way - tax can only take half a gross payment which may not be possible with a small income stream - so with a  they will issue a simple assessment, basically a bill, to pay the tax.

The adjustment to the 2024-25 tax code will normally only relate to extra tax due for 2024-25.

The tax owed for 2023-24 would be included in the 2025-26 tax code (if that's possible, if not then a Simple Assessment calculation will be issued and the tax is payable by 31 January after the end of the tax year, so 31 January 2025 in @molerat's example).