PPI Tax for the Deceased

Dazed_and_confused · 3 November 2018 at 9:20PM

I think the PPI in respect of your mother is the estates income so 20% tax is due.

If this has already been deducted by the PPI company then no further tax seems to be payable.

This is not your income. Or your father's income.

If the estate hands over the capital now available to you and/or your father then you or your father may choose to put that into savings accounts and the interest on those accounts is taxable on you or your father (with normal exceptions such as ISA, certain NS&I accounts).

This might help you,

https://www.litrg.org.uk/tax-guides/bereavement-and-tax/how-estate-taxed-during-administration

I think you are possibly making this slightly more complicated than it is to be honest.

Dazed_and_confused · 3 November 2018 at 9:34PM

Is the interest classed as part of the Personal Savings Allowance; ie. if my interest from savings and interest from PPI is less than £5000, I shouldn’t pay any tax?

You are getting things mixed up here.

It is possible to have upto £17,850 of interest (including PPI interest) before tax is payable on it however other income such as wages or pensions can eat into this

£11,850 - Personal Allowance
Upto £5,000 - savings starter rate (0%)
Upto £1,000 - savings nil rate (known as the Personal Savings Allowance)

You only get the full £5,000 savings starter rate if your non savings income such as taxable wages, pension, benefits is £11,850 or less.

Once non savings income reaches £16,850 then the savings starter rate is completely lost and you just have the savings nil rate (known as Personal Savings Allowance).

Lockardian · 4 November 2018 at 1:06PM

Dazed and Confused (I love the name, it sums up how I’m feeling too!) - thanks for that, your posts make things a lot clearer.

The only thing I’m unsure about now (I think) is the £5000 savings starter rate and £1000 savings nil rate you mention. Am I right in thinking that these figures relate to interest and not money in the bank?

So if I earn £11,850 (or less) from employment I can also “earn” another £6000 in interest before anything becomes taxable? It doesn’t matter if I have say £10,000 sitting in a savings account, it’s only the interest on this £10000 that is potentially taxable?

To be honest, there’s no way I’m going to earn anywhere near £5000 or £6000 in interest on savings, but potentially the refunded “PPI interest” received from my own accounts this tax year could approach that figure - which is why this additional PPI interest from my mum’s account was a possible concern in the first place. However, you’ve confirmed it won’t be a factor.

I do appreciate your comprehensive and jargon free answer!

Dazed_and_confused · 4 November 2018 at 2:43PM

You only pay tax on income from savings not the capital.

There is more information on gov.uk

https://www.gov.uk/apply-tax-free-interest-on-savings

And LITRG have a great helpsheet (first link in the page I've linked to here,

https://www.litrg.org.uk/tax-guides/other-tax-issues/savings-and-tax

Don't forget you only get the savings starter rate if you have low wages/pension income. It is phased out between £11,850 and £16,850 leaving just the nil rate of upto £1,000 (PSA) if you go over £16,850.

Lockardian · 4 November 2018 at 7:43PM

Thanks again - very useful links!

Yes, I realise if I earn over £11,850 this will “eat into” my tax free savings allowances, but was quoting that figure to keep things simple. I *think* it all makes sense now!

I read on one of the links you gave me that if the only income received by a deceased person’s estate is savings interest, I don’t have to declare it and be liable for the tax. In my mum’s case, her estate’s only income this year is PPI interest, so it looks like the same rule applies. However, because the company has already deducted tax from this interest, could there be an argument that a tax refund is due? Hmm.. I may complete an R40 anyway. Shy bairns get nowt!

Lockardian · 9 November 2018 at 4:08AM

It is possible to have upto £17,850 of interest (including PPI interest) before tax is payable on it however other income such as wages or pensions can eat into this

£11,850 - Personal Allowance
Upto £5,000 - savings starter rate (0%)
Upto £1,000 - savings nil rate (known as the Personal Savings Allowance)

You only get the full £5,000 savings starter rate if your non savings income such as taxable wages, pension, benefits is £11,850 or less.

Can anyone advise how the £60 flat rate job expenses affects this? Does it effectively reduce the £5000 savings starter rate?

I ask because I have declared £11 untaxed savings income as part of my R40 form to claim a refund of tax paid on my own PPI income, and my tax code has subsequently changed.

It used to be 1191L (11,850 + 60 = 11,910), but is now 1189L. Effectively this means that had I earned exactly 11,910 I would have paid no tax on my wages, but now I will pay a little tax on that amount just because I have savings interest.

If I didn’t have an additional allowance for job expenses, I assume my tax code wouldn’t have changed. So were they right to change it in this instance and in doing so reduce my allowance for flat rate job expenses? If I earn £60 interest, I lose the £60 expenses allowance - which effectively means I’m being taxed on that £60 of interest!

Please can someone clarify what’s happened here?

I know the figures involved are small, but what if it had been more than £60? Do I then lose the whole of my £60 job expenses allowance? I don’t understand how savings interest can affect my personal allowance for wages - surely it shouldn’t? But by changing my “personal
allowance” and tax code because I have a earned a small amount of savings interest, this implies I will pay more tax even though I won’t have used up my £5000 savings starter rate allowance!

Dazed_and_confused · 9 November 2018 at 7:21PM

Can you explain how the tax code of 1189L is made up?

Without knowing that why do you think you are losing the expenses. These are in addition the Personal Allowance so assuming you actually have earnings of £60 (or more) then you should still get it.

A tax code can be made up of dozens of different elements, the final number means nothing other than your employer or pension payer knows how much tax free amount to allow each week or month.

There could be literally millions of ways to arrive at 1189L.

Might be,

Personal Allowance £11,850
Plus flat rate expenses £60
Total allowances £11,910
Less savings interest £11
Net allowances £11,899= tax code 1189L

Lockardian · 9 November 2018 at 11:12PM

Thanks Dazed - The summary you give is exactly what they have done.

I rang them to query and the person I spoke to wasn’t even aware of the £5000 savings starter rate, and said I had used up my savings allowance with the £2000 PPI interest.

After a lengthy conversation in which he consulted colleagues, it turns out that this £11 interest shouldn’t affect my tax code or personal allowance, but because of the way they record it, it does.

I couldn’t really understand his explanation - it all boiled down to the fact they have to somehow tax the £11, even though when all this year’s info is complete, the £11 won’t be taxed (because I won’t have earned enough to use up my £5000 savings allowance and the total wages plus interest won’t be anywhere near £16,850 or £17,850).

In the end he removed the £11 gross interest I had declared (because they don’t really need to know about it until next year), and adjusted my code back to 1191L. I’m happy with that, but still none the wiser about why it was recorded in such a way as to penalise me in the first place. Lesson learned - tell them nothing about untaxed interest until the tax year is complete!

Dazed_and_confused · 10 November 2018 at 12:41AM

I'm not sure there was anything wrong with the 1189L tax code.

What have you/HMRC estimated your income to be for the 2018:19 tax year at whichever employer/pension company is going to use this tax code?

Sadly I think you must have spoken to someone who has little or no knowledge of personal taxation or how tax codes work!

Lockardian · 10 November 2018 at 5:04AM

We have estimated my income to be under £11,191 (or it may be a few pounds over). But keeping the £11 on my tax account means I would pay tax as soon as I hit £11,899 and would miss out on another £11 of tax free wages.

Yes, the figures are pennies, but the principle is any untaxed savings interest income was coming off my tax-free allowance for wages, which seems wrong. Having savings interest shouldn’t reduce my tax free wages allowance!! Surely I’m correct about that? Yes, I will pay tax on wages if they exceed £11,910 which I understand, and yes, that then reduces my £5000 savings starter rate (but I would still have enough allowance left to not pay tax on the savings interest). He seemed to think I only had £1000 until both I and a colleague corrected him.

Let’s say for argument’s sake I kept the 1189L code (equates to £11,899) and I earned precisely £11,910 in wages. And the only savings interest I had earned was this £11 they’ve deducted from my allowance. I would then pay tax on the £11 I had gone over my allowance. Effectively it’s my £11 interest that would be taxed, which should be tax free in this case. That’s why I feel it’s being “allocated” incorrectly.

PPI Tax for the Deceased

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