Help with Income tax taken from bank insurance policy refund
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pluginbaby
Posts: 6 Forumite
in Cutting tax
Hi all
I was the sole beneficiary for my late mother's estate two years ago. All was settled and finished with as far as I was aware.
Earlier this year I got a letter from Lloyds Bank home insurance stating that they may owe me, as the beneficiary, some money. I sent back the relevant information and they sent me a letter which shocked me somewhat.
Basically they said they owe me a five figure sum. However, 2k was deducted from this before sending it to me for 'income tax'. They noted it may be able to be claimed back from HMRC but I would need to contact them.
Now, the reason for the refund is apparently due to my mother having had two insurance policies run alongside each other for the period of 2003 until her death in 2016. This seems to have been a mistake by Lloyds rather than my mother, but it wasn't clear how two policies were set up and allowed to continue. Im not sure how much she was paying considering the payment but it must have been a fair bit!
So, anyway, I contacted HMRC and they said I needed to complete an R40 form to claim back tax from insurance and investments. I completed this and have received a reply back that because I am self employed I have to wait until the end of the next tax year April 2019 to apply.
My questions are:
1) Why should there be any tax due at all? My mother was a pensioner, and the refund was from an error covering a long time period of 2003-2016. How can it possibly be classed as income?
2) If this was declared by Lloyds when I was in the process of settling her estate, it would have been put through that it was still under the threshold for not paying inheritance tax. So no tax here either.
3) I am self employed but do not pay tax as I do not earn enough
4) Why should I have to wait until April 2019 for something which was missold back in 2003-2016?
I do not know if this is the right section, I will post it in insurance as well. I am really unsure what to do but 2k is a lot of money and I would like it back if I can get it!
Thanks for reading, appreciate any help.
I was the sole beneficiary for my late mother's estate two years ago. All was settled and finished with as far as I was aware.
Earlier this year I got a letter from Lloyds Bank home insurance stating that they may owe me, as the beneficiary, some money. I sent back the relevant information and they sent me a letter which shocked me somewhat.
Basically they said they owe me a five figure sum. However, 2k was deducted from this before sending it to me for 'income tax'. They noted it may be able to be claimed back from HMRC but I would need to contact them.
Now, the reason for the refund is apparently due to my mother having had two insurance policies run alongside each other for the period of 2003 until her death in 2016. This seems to have been a mistake by Lloyds rather than my mother, but it wasn't clear how two policies were set up and allowed to continue. Im not sure how much she was paying considering the payment but it must have been a fair bit!
So, anyway, I contacted HMRC and they said I needed to complete an R40 form to claim back tax from insurance and investments. I completed this and have received a reply back that because I am self employed I have to wait until the end of the next tax year April 2019 to apply.
My questions are:
1) Why should there be any tax due at all? My mother was a pensioner, and the refund was from an error covering a long time period of 2003-2016. How can it possibly be classed as income?
2) If this was declared by Lloyds when I was in the process of settling her estate, it would have been put through that it was still under the threshold for not paying inheritance tax. So no tax here either.
3) I am self employed but do not pay tax as I do not earn enough
4) Why should I have to wait until April 2019 for something which was missold back in 2003-2016?
I do not know if this is the right section, I will post it in insurance as well. I am really unsure what to do but 2k is a lot of money and I would like it back if I can get it!
Thanks for reading, appreciate any help.
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Comments
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pluginbaby wrote: »I am really unsure what to do but 2k is a lot of money and I would like it back if I can get it!
Have you any reason to think you won't get it back? HMRC seem to be saying you'll get it after April 2019, don't you believe them?0 -
Has the tax been deducted from statutory interest which is part of the refund. If it was just a case of refunding the premiums I do not see any basis for deducting tax.0
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BoGoF - Yes, exactly what I am wondering. I just don't understand why tax has been taken off at all. Do you know whether the R40 form was the right one? I am just confused by it all.
Agrinnal - HMRC were unsure themselves of what form I needed to use to claim it back. They even said it was classed as an investment as it was an insurance policy. Doesn't exactly fill me with confidence.
If they will definitely give it back then I do not mind waiting until April, but it's more whether they definitely will, as they haven't said they would either.0 -
Didn't the letters you were sent by Lloyds give a breakdown of the settlement. What was the total amount paid to you?0
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Has the tax been deducted from statutory interest which is part of the refund. If it was just a case of refunding the premiums I do not see any basis for deducting tax.
£2,000 tax would suggest the interest alone was £10,000, which would eat up most of the OPs allowance so it is unlikely that they will get all of this back unless they earn less than £2,850 through self employment.
As a self employed person HMRC no not know what your total income for this financial year will be, so until you submit your SA no rebate can be given. The fact that you are now also sitting on a large unexpected windfall should ease the burden of having to wait.
If this had been paid during the administration of the estate all interest would have been subject to 20% tax as an estate does not have the personal allowance.0 -
I am still failing to see how it is classed as income, so why does my personal allowance come into it? It's a refund of an insurance policy which was incorrectly paid for and in the name of my late mother.
In the letter sent to me it said how much has been deducted for income tax/a breakdown, but also mentions it may be able to be claimed back.
I suppose I will have to ring HMRC again, but thought I would ask in here to see if anyone had any personal experiences.0 -
Before anyone can say if the payment you have received is taxable you need to understand exactly what it is that has been paid to you.
The information provided by Lloyds is extremely important as this will indicate exactly what the payment is.
Until we know what it is then nobody can provide the correct advice.
HMRC will not know what the payment is unless they have seen the correspondence from Lloyds.
If it is interest or some other form of investment income, then tax would be applicable under the normal rules for investment income.
If it's a pension/death benefit payment, tax will be calculated with this forming part of your annual income.
If it's a refund of premiums this would be treated differently in that no tax would generally be deductable simply for repaying premiums paid in error, but there may be interest added to this amount which is taxable.
If you can provide this information then someone can offer a definitive answer.
If it's a death benefit payment/pension payment for the whole of the remaining pot , then the correct form would be either P53 or P53Z.
If it's any kind of investment income, i.e. interest, then the R40 would be correct.[SIZE=-1]To equate judgement and wisdom with occupation is at best . . . insulting.
[/SIZE]0 -
Because it's clearly not just a refund of the premiums, taxable interest has also been added on as compensation.
This interest is income. If it is deemed to be income of your late mother's estate then no refund is due as income arising during the period of administration does not benefit from allowances.0 -
Thank you! Yes this makes sense.
In the letter they say they have refunded the premiums for the incorrect policy during the time there was dual insurance. And they also say they have added interest.
Just reading the letter again (this is from June so not recent) it says that the interest payment constitutes taxable income so they have taken off 20%.
I guess I will need to forget about claiming it back then?0 -
pluginbaby wrote: »Thank you! Yes this makes sense.
In the letter they say they have refunded the premiums for the incorrect policy during the time there was dual insurance. And they also say they have added interest.
Just reading the letter again (this is from June so not recent) it says that the interest payment constitutes taxable income so they have taken off 20%.
I guess I will need to forget about claiming it back then?
That depends on your other income. You are allowed to earn £1000 interest tax free, and you said that you earn under the tax threshold so you should be able to get at least a good portion of it back.0
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