state pension - first part year

SnowMan

At the other end of things I understand that state pension is paid for a full week in the week of death. That is if pay day is a Wednesday (because last 2 digits of NI are between 40 and 59) and death is on a Friday you (or the estate more likely) get paid for the full week from Thursday to Wednesday that includes the Friday of the death.

And so if the weekly accrual I mentioned earlier is what HMRC are doing then taxable state pension in the tax year of death should (unless for example SPD and death are in the same tax year) be a whole number of weeks of which the first week (in the example the week ending on the first Wednesday in the tax year of death that is on or after 6th April) is at the pre April rate and the remaining weeks are at the post April weekly rate.

If death is early enough in the tax year then total income from all sources can be well below the personal allowance (because you get a full year not apportioned personal allowance in the tax year of death) so the exact calculation might not matter too much.

jem16

https://forums.moneysavingexpert.com/discussion/comment/82112145#Comment_82112145

That’s certainly true for deaths where the person reached SPA before 6th April 2016. However I’m not sure if it applies to those reaching SPA after that.

SnowMan

https://forums.moneysavingexpert.com/discussion/comment/82112166#Comment_82112166

You may be right. I remember that coming up before, and there being some doubt what happens in practice, but I don't recall an example of anything other than a full week of payment being made (albeit the majority of deaths to now are those who reached SPA under the old system).

pinnks

Your post is long and postulates of lot of questions about what HMRC can reasonably expect, or think. I have written explanatory notes and would suggest there is no hidden meaning of day-to-day, and a straightforward reading would be consistent with the guidance you linked to where we thought the example was wrong, but is, in fact correct. It's a shame they chose an exact 13 weeks for that example.

But the bottom line is that for whatever reasons it has been agreed internally that HMRC will accept 1/51 as a near approximation of the accrued amount for tax purposes. In this context the letter sent by the head of HMRC to the PAC about the error with pre-populating returns is interesting - standard letter templates (Word 256kb)

For me the issue is no longer worth breaking my grey cell over. A quick look at my own numbers suggests that over the rest of my life (well, if I live to 87) the 1/51 approach may lead to me being effectively under-assessed on a couple of hundred quid from perhaps a third of a million SP payments if the 2.5% of the TL continues and were to apply to every future year.

SnowMan

I've no experience of explanatory notes so I will defer to you on that one.

That John-Paul Marks HMRC letter is interesting. He says 'for most pensioners, the correct taxable amount of State Pension over a tax year should be calculated as one week at the previous year’s weekly rate and 51 weeks at the current year’s weekly rate'. The difficulty with accepting that daily accrual is what HMRC is doing is that the 51/1 method can only be correct if it's accrual assessed weekly as detailed earlier that is allowed for. And for years where state pension is received throughout the year the daily accrual figure is always numerically higher than 52 weeks at the new rate. But this is inconsistent him saying the 52 weeks pre-populated figure at new rate is incorrect and too high. So without knowing why he thinks 51/1 is correct and 52/0 is too high the mystery remains. Of course it's quite possible that HMRC in practice use daily accrual for the first part tax year (so calculate the period from the exact day SPA is reached and to the exact day 5th April inclusive of both dates) and possibly round that period to weeks (based on some rounding convention perhaps rounding part days of the week down) and weekly accrual for subsequent complete tax years and accept it's a bit of a bodge. In my view if HMRC are going to use weekly accrual for the full years despite legislation saying it should be daily accrual and claim that is correct (because of practicalities), then it would make more sense for them to use weekly accrual for the part year also and claim that is correct also (for consistency with full year reasons).

What is encouraging is that he says HMRC are working with LITRG, an organisation I have great confidence in for the quality, detail and accuracy of their information. Hopefully something good will come of that.

Where we can agree is that whatever HMRC are doing it isn't making a material difference to tax being paid. My frustration (and I'm some years off SPA) is the lack of clarity and documentation from HMRC into their precise methodology, albeit the 51/1 statement helps. I still think the yearly taxable amount of state pension should be provided to taxpayers in some form.

Anyway thanks for your input it has certainly taken my understanding forward a lot.

(edited 24th August to clarify argument)

1knuckles1

An update.

We spoke to Self Assessment, got transferred to PAYE (someone who professed to know about pensions), who advised state pension from 30.9.25 counts as 26 weeks.

Not sure if this was calculated as 26 full weeks 2/10 - 1/4 (ie excluding the last week before uplift, taxed 26/27) plus 2 days (excluded) or 26.86 weeks 30/9 - 5/4 rounded down.

Popped this in the tax return.

Received what looks to be an automatically generated letter saying this figure does not agree with their records (which show 27 weeks).

Spoke to Self Assessment who confirm 27 weeks. I wasn't on the call so don't know the basis of this calculation.

We are writing to disagree on the basis that week 2.4.26 - 8.4.26 will be taxed in 2026/27. We quote their own guidance which seems to confirm this. Hopefully we are requesting their calculation, should they not allow 26 weeks (again, not my letter).

Shocked to see SnowMan says 'HMRC prefill 52 weeks at the new rate rather than 51/1'.

Given the 6/4 uplift is not paid until 9.4.26, I thought the 26 weeks was fair. Hopefully that will be agreed. If not, this is a double whammy! Such a mess.

SnowMan

Thanks for updating us. What a mess. Will be interesting to find out what transpires out of this.

Qyburn

https://forums.moneysavingexpert.com/discussion/comment/82106812#Comment_82106812

For the first (part) year the suggestion that it's the first part week, plus the number of full weeks after that, which end before 6 April that is taxed, is a reasonable interpretation of the legislation

That's not how my first year was assessed. HMRC's figure equated to the number of weeks that would have been paid if the first payment had been for a whole week. 27 whole weeks, rather than the part week plus 26 whole weeks that was actually paid.

SnowMan

https://forums.moneysavingexpert.com/discussion/comment/82137836#Comment_82137836

Just to understand what you are saying

a) are you saying the period from the day you reached SPA to the last day of the last state pension week that ended before 6th April (including both days) was 26 weeks and x days and they rounded up to 27 weeks? So if you are paid say on a Friday the end date here is the last Friday in the tax year.

b) or are you saying that the period from the day you reached SPA to 5th April (including both days) was 26 weeks and x days and they rounded up to 27 weeks?

And either way are your dates such that a) and b) are the same or different whole number of weeks?

I ask because you may be assuming a) and thinking that the 26 complete weeks and x days has been rounded up to 27, when in fact HMRC uses b) and the period in b) might be 27 complete weeks and so HMRC haven't rounded up just used a different period. Alternatively if both a) and b) are 26 complete weeks then then we can assume some sort of round-up is going on in your case.

In 1knuckles1's case it is 26 weeks and x days whether you use a) or b). It is not clear the exact period that one half of HMRC thinks is rounded up to 27 weeks, or what the other half of HMRC thinks the period is that is rounded down to 26 weeks.

Qyburn

https://forums.moneysavingexpert.com/discussion/comment/82143400#Comment_82143400

a) are you saying the period from the day you reached SPA to the last day of the last state pension week that ended before 6th April (including both days) was 26 weeks and x days and they rounded up to 27 weeks? So if you are paid say on a Friday the end date here is the last Friday in the tax year.

b) or are you saying that the period from the day you reached SPA to 5th April (including both days) was 26 weeks and x days and they rounded up to 27 weeks?

Neither (a) nor (b) in my case.

From the day I reached SPA until the end of the tax year there were 27 whole weeks, and that matches the figure HMRC used. Actual payment was one part week and 26 whole weeks.