State Pension - The money we owe

silvermum

Hi - sorry to resurrect an old thread, but I have just had this exact same letter with regard to my father who died 11 years ago!
The dates also line up with the period after my mum died (making him a widower) and his own death.

Can anyone share what the outcome was for them?

ColinB

In the same boat. My wife & brother-in-law (who were joint executors for my father-in-law's estate when he passed away 4 years ago) have just had a letter from DWP informing them that they are owed money from an underpayment of FIL's State Pension going back many years. Apparently this arises from an exercise called Legal Entitlements and Admin Practices (LEAP) which DWP were forced into because they were not dealing with pension issues correctly. This affects many thousands, if not hundreds of thousands, of people. In FIL's case, when MIL passed away, he became entitled to a share of her pension. He did not know this so did not claim it, and they did not tell him. Now they've discovered it and want to pay him, or his estate, the arrears. 

On the face of it, it's good news that it's being rectified. But it opens a whole new world of pain because the IHT assessment and Grant of Probate from 4 years ago now have to be revisited. There doesn't seem to be any process for re-opening these things (if anyone knows how, let me know please!). 

Dazed_and_C0nfused

ColinB said:

In the same boat. My wife & brother-in-law (who were joint executors for my father-in-law's estate when he passed away 4 years ago) have just had a letter from DWP informing them that they are owed money from an underpayment of FIL's State Pension going back many years. Apparently this arises from an exercise called Legal Entitlements and Admin Practices (LEAP) which DWP were forced into because they were not dealing with pension issues correctly. This affects many thousands, if not hundreds of thousands, of people. In FIL's case, when MIL passed away, he became entitled to a share of her pension. He did not know this so did not claim it, and they did not tell him. Now they've discovered it and want to pay him, or his estate, the arrears. 

On the face of it, it's good news that it's being rectified. But it opens a whole new world of pain because the IHT assessment and Grant of Probate from 4 years ago now have to be revisited. There doesn't seem to be any process for re-opening these things (if anyone knows how, let me know please!). 

I thought there had been a government/Parliamentary announcement about this but I cannot find it now.

I did find this though on an accountants website

https://yogatax.co.uk/acca-state-pension-arrears

Deceased taxpayers

If the monies were paid to the person while they were alive then they just become part of their estate, which is declared for probate.

Customers who passed away before the date DWP paid the arrears will not be charged tax. HMRC will not collect income tax on state pension arrears payments in cases where the individual, entitled to the arrears of state pension, is deceased at the point DWP make payment of the arrears. In addition, the right to the payment will have no value for IHT and will not need to be disclosed to HMRC.

ColinB

Huge thanks Dazed_and_C0nfused, that's massively helpful. ACCA is the professional body for chartered accountants so ought to be pretty knowledgeable. It'd still be nice to get a definitive statement from a Gov.UK source, but your input provides a useful line to take.

silvermum

Thank you, that IS helpful, as I had the same concern about having to revisit probate!

I have no idea what to expect in terms of the sort of figure to expect. My mother's pension would only have been the standard state pension so I don't know what % of that my father would have been entitled to after her death. Havings said that, even a few £ a week over nine years could be a reasonable sum of money!

Dazed_and_C0nfused

There is some more detail here,

https://www.litrg.org.uk/pensions/state-pension/tax-state-pension/how-tax-collected-state-pension

LITRG are usually very well informed and quite thorough so I would be very surprised is this wasn't correct.

Death before back-payment is made

We understand in cases where the pensioner has unfortunately died prior to the back-payment being made, that the payment will go to the individual’s personal representatives or next of kin.

HMRC have told us that the tax position will vary depending on whether or not the pensioner receives a notification from the DWP that a back-payment is due before they died:

If both the notification of the back-payment and the payment itself are received after death, then HMRC will not collect income tax on the back payment. The payment will not be included as part of the deceased’s estate for inheritance tax purposes.

If the pensioner has been notified by the DWP that a back-payment will be made, but the payment is not actually received until after they have passed away, income tax will still be collected by HMRC (payable by the personal representatives). The payment will form part of the deceased’s estate for inheritance tax purposes.

silvermum

I've been exploring this a bit more, and this company has developed an online tool to check possible entitlement:

https://www.lcp.com/en/media-centre/press-releases/dwp-making-new-errors-on-widows-state-pensions-lcp-launches-new-tool-to-help-people-check

ColinB

Have just phoned HMRC's IHT Helpline, and got a slightly different story to those reported on the ACCA and LITRG websites. HMRC say they expect us to check whether the underpayment, if added to the estate valuation, would put the total over the IHT threshold. If it doesn't, they don't need to know. But if it does, then they expect to be informed, presumably so that they can levy IHT on the difference. Which means having to delve into the intricacies of the calculation from 4 years ago. Grrr. I might try calling again tomorrow to get a different agent and see if I get the same story.

(Silvermum: thanks, but that calculator doesn't really help in my case)

sheramber

Refers to pay awards but possibly applies to pension awards as well as agrees with LI TRG

IHTM10125 - Other income due to the deceased - retrospective pay awards

Remuneration received as part of a retrospective pay award is only included as part of the estate for Inheritance Tax purposes if the date of the award was before the date of death.

ColinB

ColinB said:

Have just phoned HMRC's IHT Helpline, and got a slightly different story to those reported on the ACCA and LITRG websites. HMRC say they expect us to check whether the underpayment, if added to the estate valuation, would put the total over the IHT threshold. If it doesn't, they don't need to know. But if it does, then they expect to be informed, presumably so that they can levy IHT on the difference. Which means having to delve into the intricacies of the calculation from 4 years ago. Grrr. I might try calling again tomorrow to get a different agent and see if I get the same story.

So I phoned HMRC a second time, and got exactly the same response. That is, they expect the executors to check whether the windfall puts the estate value above the IHT threshold, and for them to be informed if it does. If it doesn't, they don't want to know.

That suggests the ACCA and LITRG websites are not correct. I've written to the latter pointing this out, but TBH I don't expect a reply. ACCA are difficult to contact unless you're a member. 

It's easier than I thought to do the check HMRC wants: if you look at the IHT400 that was submitted for probate, plug in a new value for the estate assets (get the value of the arrears from DWP), and follow the calculation through the various boxes you can get the indication you need. We're still OK, unless DWP have goofed again and the amount they want to give us is radically different from the amount they've told us verbally.