Incompetent handling of estate by previous executor means 45% tax now due on private pension!

Marcon

endaf said:

saajan_12 said:

The first priority is working out what tax is actually due and if it can be claimed back by the normal means. Second would be arguing about who's responsibility the delay is and claiming back money from them. That'll be much more contentious and less likely to actually result in money. 

So re what is due, my understanding is that if the person who died was over 75 OR if the money was claimed 2 years later, the recipient would pay income tax on the money, at THEIR rates. So if the child has no other income then the first 12.5k at 0%, then the rest at 20%. That'll get back the lion's share of the tax paid, so should be done first. Note it may work a little differently if the money is held in trust, but info here: https://www.gov.uk/tax-on-pension-death-benefits
If you do employ someone then it should be a lawyer or accountant who specialises in trusts and pensions, though this may eat up too much of the money to be worth it. 

At that point you're back to £5.5k tax (vs £18k at the top whack 45% rate). Then you can decide whether its worth looking into who was responsible for getting the pension paid - I'd have thought that was the beneficiary not the executor. If so, then no one you can really claim off. If it is the executor and they failed in this duty then you might be able to claim the 5.5k from them but this is a long shot. 

Hi saajan,
Im even more confused now as over in the pension forum ive been told no chance of obtaining the 45% tax back or even a portion of it. 

I don't think that has been said in the pension forum - I've just had a look. It isn't helpful to have two threads running on the same question, precisely because it is so easy for this sort of confusion to arise. I've asked for the two threads to be merged in the hope that will assist/clarify.

mybestattempt

I've researched the HMRC guidance pension manual and employment income manual as well as reading the NHS information at:

 https://www.nhsbsa.nhs.uk/pensioner-hub/bereavement/what-happens-your-pension-when-you-die

I must emphasise these are only my thoughts, however, I think the 45% tax deducted cannot be recovered.

If the payment had been made within the 2 years then it would have been exempt from tax.


My reading of the HMRC guidance at:

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm073100

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm073010

leads me to the view that the because the payment is outside the 2 years the 45% tax charge is correct as a special lump sum death benefits charge and the recipient cannot claim repayment of any of the tax deducted.


This is, again in my view, is confirmed by:

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim75620

From my reading, the payment and tax deducted will be reported to HMRC by the pension scheme and at the same time the recipient will be advised of the tax treatment.

Others, may of course, disagree with the view I have formed.

GDB2222

I’m still trying to understand exactly what happened, because you need to work out who was at fault before you even consider suing.

First of all, is this a death in service benefit? In other words, was dad still working for the NHS when he died? 

It sounds like the executor did notify the pension scheme that dad died. Is that correct? 

What exactly happened after that? What paperwork did the scheme issue, and to whom? I’d have expected the scheme to contact the beneficiaries, or their parents for minor beneficiaries. 

You may be right that the executor was useless, but the pension is not part of the estate, so none of this may strictly be the executor’s responsibility? In fact, the child's mother may be the one to blame. Not what you wanted to hear, I’m sure.

molerat

The Royal London guide seems to put it in understandable terminology

https://adviser.royallondon.com/technical-central/pensions/death-benefits/pension-death-benefits/

Marcon

GDB2222 said:

I’m still trying to understand exactly what happened, because you need to work out who was at fault before you even consider suing.

First of all, is this a death in service benefit? In other words, was dad still working for the NHS when he died? 

It sounds like the executor did notify the pension scheme that dad died. Is that correct? 

What exactly happened after that? What paperwork did the scheme issue, and to whom? I’d have expected the scheme to contact the beneficiaries, or their parents for minor beneficiaries. 

You may be right that the executor was useless, but the pension is not part of the estate, so none of this may strictly be the executor’s responsibility? In fact, the child's mother may be the one to blame. Not what you wanted to hear, I’m sure.

The lump sum will be part of the estate if the father died unmarried and did not leave a valid nomination form:

The NHS Pension Scheme is not a discretionary scheme. The lump sum on death benefit will be paid to

the legal spouse, registered civil partner or qualifying scheme partner unless the member has nominated

someone else on the lump sum on death benefit nomination form (DB2).

If there is no legal spouse, registered civil partner, qualifying scheme partner or nomination, the lump sum

on death benefit will be paid to the member’s Estate. If the lump sum amount is £5,000 or more, sight of a

Grant of Probate or Letters of Administration will be requested before the lump sum is paid.

This has all the hallmarks of a member who died without leaving a valid nomination form - but (and sincere apologies to OP) when I asked the question earlier in this thread, OP confirmed that a nomination form was left by the member, naming his young daughter as the sole beneficiary. If that's the case, it is extremely difficult to see why the scheme did not approach the mother in respect of both the lump sum and the child's pension, assuming the nomination form had up to date contact details. 

OP has repeatedly said they were concerned about the lack of action/chivvied the child's mother to 'do something'. If the scheme had been writing to her, surely one or other of them would have realised action was needed?

The problem with all the speculation on this thread is that is precisely what it is: speculation (coupled with some incorrect 'information'). OP, any chance that your partner could sit down with her sister and try to establish what has really happened, and in particular if there was definitely a valid nomination form? I'm sorry to labour the point, but as you will see from this post, it matters.

GDB2222

I agree with you @Marcon   The OP really needs to find out exactly what happened before starting a major family row. It’s even possible that the pension scheme is at fault. 

madbadrob

molerat said:

The Royal London guide seems to put it in understandable terminology

https://adviser.royallondon.com/technical-central/pensions/death-benefits/pension-death-benefits/

I think that puts it in very easy to read format but the issue witht hese formats is they do or can miss vital points that could affect the person who is reading them greatly.  As Marcon as said in this instance I feel its time to take all the relevant paperwork to a STEP accountant/financial advisor and have them look and advise.  

Rob

saajan_12

mybestattempt said:

I've researched the HMRC guidance pension manual and employment income manual as well as reading the NHS information at:

 https://www.nhsbsa.nhs.uk/pensioner-hub/bereavement/what-happens-your-pension-when-you-die

I must emphasise these are only my thoughts, however, I think the 45% tax deducted cannot be recovered.

If the payment had been made within the 2 years then it would have been exempt from tax.


My reading of the HMRC guidance at:

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm073100

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm073010

leads me to the view that the because the payment is outside the 2 years the 45% tax charge is correct as a special lump sum death benefits charge and the recipient cannot claim repayment of any of the tax deducted.


This is, again in my view, is confirmed by:

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim75620

From my reading, the payment and tax deducted will be reported to HMRC by the pension scheme and at the same time the recipient will be advised of the tax treatment.

Others, may of course, disagree with the view I have formed.

Genuinely trying to understand rather than challenge: 

My read of this link was that after 2 years, the money the child receives is treated as Income, subject to Income Tax. That would suggest its at their tax bands, so 0%, 20%, 40%, 45%. 
https://www.gov.uk/tax-on-pension-death-benefits

Also the NHS page you link to and the Survivors guide mentions "up to 45%" throughout, so the above could still be true. 
https://www.nhsbsa.nhs.uk/sites/default/files/2024-08/Survivors Guide (V12A) 04.2024.pdf

I admit I havent read the two HMRC links you posted in full - can you point to a section of that you're referring to? 

mybestattempt

saajan_12 said:

mybestattempt said:

I've researched the HMRC guidance pension manual and employment income manual as well as reading the NHS information at:

 https://www.nhsbsa.nhs.uk/pensioner-hub/bereavement/what-happens-your-pension-when-you-die

I must emphasise these are only my thoughts, however, I think the 45% tax deducted cannot be recovered.

If the payment had been made within the 2 years then it would have been exempt from tax.


My reading of the HMRC guidance at:

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm073100

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm073010

leads me to the view that the because the payment is outside the 2 years the 45% tax charge is correct as a special lump sum death benefits charge and the recipient cannot claim repayment of any of the tax deducted.


This is, again in my view, is confirmed by:

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim75620

From my reading, the payment and tax deducted will be reported to HMRC by the pension scheme and at the same time the recipient will be advised of the tax treatment.

Others, may of course, disagree with the view I have formed.

Genuinely trying to understand rather than challenge: 

My read of this link was that after 2 years, the money the child receives is treated as Income, subject to Income Tax. That would suggest its at their tax bands, so 0%, 20%, 40%, 45%. 
https://www.gov.uk/tax-on-pension-death-benefits

Also the NHS page you link to and the Survivors guide mentions "up to 45%" throughout, so the above could still be true. 
https://www.nhsbsa.nhs.uk/sites/default/files/2024-08/Survivors Guide (V12A) 04.2024.pdf

I admit I havent read the two HMRC links you posted in full - can you point to a section of that you're referring to? 

The OP said that the whole amount of the payment, because it falls outside the 2 year period, will be subject to tax at 45%. 

My view, based on that, is the payment will be made, (absent a valid nomination for the child to receive the payment) to the personal representative of the late father, (his sister in her capacity as executor/administrator of his estate), and thus the special lump sum charge of 45% will be applied. 


From my reading of the HMRC guidance manuals :

Whether the taxable lump sum payment is taxable as income of the child, or subject to the special lump sum death benefits charge depends on whether or not the lump sum is paid to a ‘non-qualifying person’. 

Payments to a ‘non-qualifying person' are subject to the special lump sum death benefits charge.

The personal representative administering an estate is a 'non-qualifying person'. 

The rate of the special lump sum death benefits charge is 45%. 

The person liable to pay the special lump sum benefits tax charge in respect of a defined benefits lump sum death benefit is the scheme administrator.

The lump sum is not treated as income of the recipient for any purpose of the Tax Acts.  

As the recipient is not liable to pay the tax charge  they cannot make any repayment claim in respect of the tax paid.  

The tax charge should be reported and paid to HMRC.

@Marcon has pointed it out the crux of the matter in this case is whether there was a valid nomination for the child to receive the lump sum death benefit.

If there was, then the payment would be made to the child (and would be taxable as the child's income) but, if there was not a valid nomination then the payment will fall within the estate of the late father and the special lump sum benefits charge will apply.

I hope I have made my thinking clear to you. 

   

endaf

Marcon said:

GDB2222 said:

I’m still trying to understand exactly what happened, because you need to work out who was at fault before you even consider suing.

First of all, is this a death in service benefit? In other words, was dad still working for the NHS when he died? 

It sounds like the executor did notify the pension scheme that dad died. Is that correct? 

What exactly happened after that? What paperwork did the scheme issue, and to whom? I’d have expected the scheme to contact the beneficiaries, or their parents for minor beneficiaries. 

You may be right that the executor was useless, but the pension is not part of the estate, so none of this may strictly be the executor’s responsibility? In fact, the child's mother may be the one to blame. Not what you wanted to hear, I’m sure.

The lump sum will be part of the estate if the father died unmarried and did not leave a valid nomination form:

The NHS Pension Scheme is not a discretionary scheme. The lump sum on death benefit will be paid to

the legal spouse, registered civil partner or qualifying scheme partner unless the member has nominated

someone else on the lump sum on death benefit nomination form (DB2).

If there is no legal spouse, registered civil partner, qualifying scheme partner or nomination, the lump sum

on death benefit will be paid to the member’s Estate. If the lump sum amount is £5,000 or more, sight of a

Grant of Probate or Letters of Administration will be requested before the lump sum is paid.

This has all the hallmarks of a member who died without leaving a valid nomination form - but (and sincere apologies to OP) when I asked the question earlier in this thread, OP confirmed that a nomination form was left by the member, naming his young daughter as the sole beneficiary. If that's the case, it is extremely difficult to see why the scheme did not approach the mother in respect of both the lump sum and the child's pension, assuming the nomination form had up to date contact details. 

OP has repeatedly said they were concerned about the lack of action/chivvied the child's mother to 'do something'. If the scheme had been writing to her, surely one or other of them would have realised action was needed?

The problem with all the speculation on this thread is that is precisely what it is: speculation (coupled with some incorrect 'information'). OP, any chance that your partner could sit down with her sister and try to establish what has really happened, and in particular if there was definitely a valid nomination form? I'm sorry to labour the point, but as you will see from this post, it matters.

Major apologies, I didnt get notifications through that there other replies so I wasnt ignoring the additional advise. 
The above is basically what has happened. 
The father died and had not completed a nomination form (we had been led to believe otherwise by the sister) so it forms part of the estate. Reading your comments it seems that there is no chance the tax can be refunded and a child loses out. The mother was just far too trusting with her ex's sister letting it go on and on for in the end i think now 4 years! 
We have issued a strong worded letter from a solicitor to the sister but she has already verbally replied with the expected excuses recovering from cancer (over 10 years ago!) mental health issues & didnt understand importance of being an executor (even though she has apparently been one for several of her family members) so we are under no illusion we wont be able to claim any "compensation" from the sister. 
Its just a bit of a sting when I myself knew something like this would happen.....
Again thank you for the additional replies and making it more clear on what has happened.