Your browser isn't supported
It looks like you're using an old web browser. To get the most out of the site and to ensure guides display correctly, we suggest upgrading your browser now. Download the latest:

Welcome to the MSE Forums

We're home to a fantastic community of MoneySavers but anyone can post. Please exercise caution & report spam, illegal, offensive or libellous posts/messages: click "report" or email forumteam@.

Search
  • FIRST POST
    • wildcath_20
    • By wildcath_20 19th Feb 16, 6:02 PM
    • 39Posts
    • 23Thanks
    wildcath_20
    PPI Tax for the Deceased
    • #1
    • 19th Feb 16, 6:02 PM
    PPI Tax for the Deceased 19th Feb 16 at 6:02 PM
    My deceased Mother has been taxed on a successful PPI claim which was paid after she had died. HMRC are saying this cannot be claimed back as all income received after a person is deceased is taxable.
    She was on disability allowance for the last 3 years of her life and therefore had no other income. Therefore what it comes down to is if the PPI payment was made before she died then she could claim the tax back as it would have been her only income but because she was deceased then HMRC are saying she had no tax code so it will be taxed at 20%. Is this right?

    The tax amounts to £600.
Page 1
    • dunstonh
    • By dunstonh 19th Feb 16, 7:02 PM
    • 95,846 Posts
    • 63,557 Thanks
    dunstonh
    • #2
    • 19th Feb 16, 7:02 PM
    • #2
    • 19th Feb 16, 7:02 PM
    Yes, the estate is automatically taxed on any income. So, that is correct.

    Date of payment is the key thing. If it was after death, then the interest is not reclaimable.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • magpiecottage
    • By magpiecottage 19th Feb 16, 10:17 PM
    • 9,114 Posts
    • 5,584 Thanks
    magpiecottage
    • #3
    • 19th Feb 16, 10:17 PM
    • #3
    • 19th Feb 16, 10:17 PM
    If the tax is £600. that suggests interest of £3,000 - in addition to the refund of the premiums. Is this correct? Tax should only be paid on the interest.

    Also, if the interest was actually paid in the tax year in which she died I suspect there may be scope for appeal.
    • wildcath_20
    • By wildcath_20 20th Feb 16, 9:09 AM
    • 39 Posts
    • 23 Thanks
    wildcath_20
    • #4
    • 20th Feb 16, 9:09 AM
    • #4
    • 20th Feb 16, 9:09 AM
    Thanks for all of your advice. The refund was paid in the tax year after she died so I do not think there would be any way to appeal to HMRC. Every time I have spoken to HRMC they have changed their answer which was why I was getting very confused.
    • dunstonh
    • By dunstonh 20th Feb 16, 12:21 PM
    • 95,846 Posts
    • 63,557 Thanks
    dunstonh
    • #5
    • 20th Feb 16, 12:21 PM
    • #5
    • 20th Feb 16, 12:21 PM
    In the year of death, income earned up to the date of death goes against the personal allowance. Income earned after the date of death is taxable. So, the tax year is effectively cut in two.

    And to copy and paste what HMRC says:
    The starting and higher rates do not apply to personal representatives in the same way as they do for individuals. Personal representatives do not get personal allowances.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • Lockardian
    • By Lockardian 3rd Nov 18, 1:23 PM
    • 21 Posts
    • 1 Thanks
    Lockardian
    • #6
    • 3rd Nov 18, 1:23 PM
    • #6
    • 3rd Nov 18, 1:23 PM
    Sorry to piggyback on an old post but my query is similar.

    I have successfully made claims for PPI this year and I understand the interest received is classed as income as far as HMRC are concerned and therefore taxable. I am applying for refunds of this tax from HMRC.

    I have also just received a successful award letter regarding PPI on a loan in my late mother’s name. From the above I understand the tax on the interest cannot be reclaimed as the refund and interest are classed as my mother’s income.

    Therefore, am I right in assuming that this interest payment is not classed as MY income** even if it is paid to me as administrator, and not classed as as my dad’s income if paid to him as her next of kin?

    **HMRC add up my wages plus PPI interest received plus any other income when calculating my gross income for the year and this determines how much tax I pay. It also affects the amount of tax credits I may get. So I’m basically asking if the PPI interest I receive for my mother’s Policy will have any bearing on this?
    • Lockardian
    • By Lockardian 3rd Nov 18, 1:55 PM
    • 21 Posts
    • 1 Thanks
    Lockardian
    • #7
    • 3rd Nov 18, 1:55 PM
    • #7
    • 3rd Nov 18, 1:55 PM
    Sorry I am unable to edit my last post, but I wanted to also ask:

    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? Or is PPI Interest classed differently to savings interest and will only be tax free if my earnings from all sources are less than my personal tax allowance (eg. 1191L / £11,910). So confused!!
    • antrobus
    • By antrobus 3rd Nov 18, 2:07 PM
    • 16,234 Posts
    • 23,092 Thanks
    antrobus
    • #8
    • 3rd Nov 18, 2:07 PM
    • #8
    • 3rd Nov 18, 2:07 PM
    ..

    Therefore, am I right in assuming that this interest payment is not classed as MY income** even if it is paid to me as administrator, and not classed as as my dadís income if paid to him as her next of kin?
    Originally posted by Lockardian
    It belongs to the estate.

    You distribute the income to the beneficiaries. You complete a R185.
    https://www.gov.uk/government/publications/trusts-and-estates-statement-of-income-from-estates-r185-estate-income
    • Lockardian
    • By Lockardian 3rd Nov 18, 2:47 PM
    • 21 Posts
    • 1 Thanks
    Lockardian
    • #9
    • 3rd Nov 18, 2:47 PM
    • #9
    • 3rd Nov 18, 2:47 PM
    Thanks. As there was no will, the funds from my motherís bank account were paid to me as administrator. This is the same company so I assume they will pay this to me. I still donít understand whose money it then becomes (in the eyes of HMRC). If I keep it, does it form part of my tax allowance? If I give it (or some of it) to my dad, does it form part of his? Or does it remain (in the eyes of the taxman) my motherís money (and therefore not Linusís to me or my dadís tax affairs)? Can anyone advise please?
    • p00hsticks
    • By p00hsticks 3rd Nov 18, 3:19 PM
    • 6,491 Posts
    • 7,023 Thanks
    p00hsticks
    Thanks. As there was no will, the funds from my mother’s bank account were paid to me as administrator. This is the same company so I assume they will pay this to me. I still don’t understand whose money it then becomes (in the eyes of HMRC). If I keep it, does it form part of my tax allowance? If I give it (or some of it) to my dad, does it form part of his? Or does it remain (in the eyes of the taxman) my mother’s money (and therefore not Linus’s to me or my dad’s tax affairs)? Can anyone advise please?
    Originally posted by Lockardian

    As antrobus has said, the payment belongs to your mothers estate.

    As you say she didn't leave a will then her estate needs to be distributed according to the intestacy rules - in England or Wales this means that the first £250,000 goes to your father.
    • Lockardian
    • By Lockardian 3rd Nov 18, 4:29 PM
    • 21 Posts
    • 1 Thanks
    Lockardian
    Thanks. I do understand all that - perhaps Iím not making my question clear (or I donít understand the implications of your advice that the money belonging to my motherís estate).

    I assume that the PPI interest is classed as my motherís money - HER PPI interest/savings income - it will show on her tax records and SHE has been taxed on it. As far as HMRC are concerned, the 20% tax is paid (deducted by bank before payment).

    Whoever subsequently gets the money doesnít then matter to HMRC? If the bank transfer the funds into my bank (or make the cheque payable to me) as administrator and I distribute it accordingly (to my dad, myself, the milkman etc) this does not mean that we, as beneficiaries, now have ďsavings PPI incomeĒ or ďPPI interest incomeĒ. Is that right? It canít be part of my motherís taxable income and also ours. So we donít have to declare it as ďincomeĒ to HMRC and they wonít take it into consideration in our tax affairs?

    Thatís what Iím wondering. I hope it makes sense.
    • Dazed and confused
    • By Dazed and confused 3rd Nov 18, 8:20 PM
    • 3,217 Posts
    • 1,607 Thanks
    Dazed and confused
    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.
    Last edited by Dazed and confused; 03-11-2018 at 8:35 PM.
    • Dazed and confused
    • By Dazed and confused 3rd Nov 18, 8:34 PM
    • 3,217 Posts
    • 1,607 Thanks
    Dazed and confused
    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).
    Last edited by Dazed and confused; 04-11-2018 at 9:52 AM.
    • Lockardian
    • By Lockardian 4th Nov 18, 12:06 PM
    • 21 Posts
    • 1 Thanks
    Lockardian
    Dazed and Confused (I love the name, it sums up how Iím feeling too!) - thanks for that, your posts make things a lot clearer.

    The only thing Iím 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 ďearnĒ another £6000 in interest before anything becomes taxable? It doesnít matter if I have say £10,000 sitting in a savings account, itís only the interest on this £10000 that is potentially taxable?

    To be honest, thereís no way Iím going to earn anywhere near £5000 or £6000 in interest on savings, but potentially the refunded ďPPI interestĒ received from my own accounts this tax year could approach that figure - which is why this additional PPI interest from my mumís account was a possible concern in the first place. However, youíve confirmed it wonít be a factor.

    I do appreciate your comprehensive and jargon free answer!
    • Dazed and confused
    • By Dazed and confused 4th Nov 18, 1:43 PM
    • 3,217 Posts
    • 1,607 Thanks
    Dazed and confused
    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.
    Last edited by Dazed and confused; 04-11-2018 at 1:47 PM.
    • Lockardian
    • By Lockardian 4th Nov 18, 6:43 PM
    • 21 Posts
    • 1 Thanks
    Lockardian
    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
    • By Lockardian 9th Nov 18, 3:08 AM
    • 21 Posts
    • 1 Thanks
    Lockardian
    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 didnít have an additional allowance for job expenses, I assume my tax code wouldnít 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 Iím being taxed on that £60 of interest!

    Please can someone clarify whatís 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 donít understand how savings interest can affect my personal allowance for wages - surely it shouldnít? But by changing my ďpersonal
    allowanceĒ and tax code because I have a earned a small amount of savings interest, this implies I will pay more tax even though I wonít have used up my £5000 savings starter rate allowance!
    • Dazed and confused
    • By Dazed and confused 9th Nov 18, 6:21 PM
    • 3,217 Posts
    • 1,607 Thanks
    Dazed and confused
    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
    • By Lockardian 9th Nov 18, 10:12 PM
    • 21 Posts
    • 1 Thanks
    Lockardian
    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
    • By Dazed and confused 9th Nov 18, 11:41 PM
    • 3,217 Posts
    • 1,607 Thanks
    Dazed and confused
    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!
Welcome to our new Forum!

Our aim is to save you money quickly and easily. We hope you like it!

Forum Team Contact us

Live Stats

2,469Posts Today

8,958Users online

Martin's Twitter