View more on these topics

Thousands expected to be hit by HMRC pension death tax error

2094965_HMRC-HM-Revenue-Customs-700x450

Thousands of people are likely to have been sent notices asking for tax to be paid after they have inherited a pension, despite no tax being due.

Last week Money Marketing revealed HM Revenue & Customs sent the notices after a system error and has had to ask providers to suspend reporting while it works out what went wrong.

An HMRC spokeswoman said a “tiny” number of people would have received notices and none of them would have paid tax.

However, Retirement Advantage says 150 of its annuity customers have been sent notices and 20 of those will have paid unnecessary tax before the provider could act.

They will have to wait a month to pay the correct amount of tax while the firm corrects their tax codes.

Retirement Advantage is one of the smaller annuity providers. Pensions technical director Andrew Tully says if the firm’s experience is replicated across the industry thousands are likely to have been affected.

In addition, there are concerns some providers will not be able to turn off their reporting immediately, meaning the error could continue to happen.

A technical expert at one major provider says: “It will depend on whether a firm has control of systems themselves, or if they are reliant on a third-party software provider and whether the third party can implement the change.

“They will be able to in time, but not necessarily straight away.”

In a note due to be sent to firms, seen by Money Marketing, HMRC admits death benefit payment notices have been issued incorrectly.

It says: “We are currently investigating this to identify why these notices are being issued.

“However, in the meantime scheme administrators should stop reporting these non-taxable death benefit payments with immediate effect.”

The issue refers to payments where the entire amount is not liable for tax and applies to both annuities and drawdown.

Providers will have to restart their reporting of these cases, which is part of HMRC’s real-time information requirements, from April 2017.

Yvonne Goodwin Wealth Management managing director Yvonne Goodwin says: “It’s common knowledge now that under the pension freedoms there is no tax liability if someone dies under the age of 75. Suddenly all these beneficiaries now have a coding notice that says they must pay tax on the inherited pension.

“Not only have these people been been bereaved but now they are facing tax issues.

“It’s not good at all. The problem is it is very hard to speak to HRMC. You can be stuck on the phone for ages and I am not sure advisers will be aware of this yet.

“It is a nightmare mess – an unintended consequence of releasing the pension freedoms so quickly.”

Retirement Advantage’s Tully says: “These inaccuracies in the real-time information process are embarrassing for HMRC.

“Obviously it may mean tax is deducted from payments when it shouldn’t be, although this should be sorted out fairly quickly. But, particularly in these cases, it’s hard enough losing a loved one without having then to deal with unnecessary tax issues.”

Tully adds: “There is a difficulty in identifying people. Our team will try and pick them up as they come through but the worry is whether some have slipped through the net that we are not aware of. Some customers will just look at a coding notice and put it aside.”

An HMRC spokeswoman says: “No one has to pay tax on these payments. We are working with providers to make this absolutely clear.”

WEB_120516_News_ExpertView2

Recommended

1

HMRC in ‘nightmare’ pensions death tax blunder

HMRC has been forced to suspend death benefit reporting after grieving consumers were incorrectly sent notices demanding tax that was not due. Providers have been told to stop sending reports on payments where beneficiaries receive pension payments tax free because the original customer died before the age of 75. This applies to both annuity and […]

1

HMRC under fire over failure to monitor potential scams

The Government has come under fire for its monitoring of potential pension scams. Money Marketing submitted a Freedom of Information request to HM Revenue & Customs asking for the number and value of unauthorised payment notices made in relation to pension liberation. Unauthorised payment charges are made when a saver withdraws their pension before the […]

Justice-Fine-Ban-Court-Gavel-Judge-700x450.jpg

HMRC wins latest Supreme Court film scheme fight

HMRC has been handed a victory by the Supreme Court, which ruled against a group of film scheme investors seeking to appeal a February decision that their actions constituted tax avoidance. The tax office has been engaged in a long-running legal battle with the Eclipse 35 group since 2011, with courts repeatedly ruling in favour […]

When is £1m not £1m?

Neil Jones is technical support manager with Canada Life’s ican Technical Services Team. Canada Life offers a range of wealth management solutions, including retirement income planning, estate planning and investment solutions from a choice of jurisdictions, including the UK, Isle of Man and Republic of Ireland. The residential nil-rate band (RNRB) was first announced in […]

Happy while you work

Well we’ve had scorching weather (yes even up here in Scotland!) and now the Euros 2016 are on – you can’t blame people for wishing life was just one big holiday.  With all these distractions it sometimes feels like work just gets in the way of having a good time! But sunny day skivers are […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment