Tax on inherited pension pot
Discussion
I sadly lost my dad in May. My brother and I have just been granted probate so we’re beginning to close accounts and collect the monies.
Dad had a small private pension that he never drew from. It wasn’t tons of money but we’ve just been given the bits back from the solicitor who dealt with the probate and it says that 45% of the pension will be/has been paid to HMRC.
My understanding is that inherited pension pots are taxed at the rate of the recipient/s - which for both my brother and I is the lower rate as we’ve both been made redundant this year, yes it’s been a lovely year! From what I’ve found the 45% applies if:
- The recipient is on the highest tax rate.
- It was emergency taxed.
- The money goes to an estate not an individual.
I assume it’s the latter, which I’m a little confused about because my brother and I are the only named recipients in the will. Is it because a solicitor closed the account it was paid into an estate or because dad never explicitly said in a letter of intent that he wanted it to come to us?
We haven’t received any money from it yet, we’ve been asked for the bank account/s we want the monies paid into, so can we still challenge it? Obviously we’ll contact the pension provider and try and speak to them next week, but I thought someone on here may be able to advise and I’d try and gather what info I can first.
Dad was over 75 when he passed away which I believe is relevant.
Any advice appreciated.
Dad had a small private pension that he never drew from. It wasn’t tons of money but we’ve just been given the bits back from the solicitor who dealt with the probate and it says that 45% of the pension will be/has been paid to HMRC.
My understanding is that inherited pension pots are taxed at the rate of the recipient/s - which for both my brother and I is the lower rate as we’ve both been made redundant this year, yes it’s been a lovely year! From what I’ve found the 45% applies if:
- The recipient is on the highest tax rate.
- It was emergency taxed.
- The money goes to an estate not an individual.
I assume it’s the latter, which I’m a little confused about because my brother and I are the only named recipients in the will. Is it because a solicitor closed the account it was paid into an estate or because dad never explicitly said in a letter of intent that he wanted it to come to us?
We haven’t received any money from it yet, we’ve been asked for the bank account/s we want the monies paid into, so can we still challenge it? Obviously we’ll contact the pension provider and try and speak to them next week, but I thought someone on here may be able to advise and I’d try and gather what info I can first.
Dad was over 75 when he passed away which I believe is relevant.
Any advice appreciated.
Info here but, yes you will normally pay tax at your marginal rate of tax (does it take you into a higher tax bracket) is only payable when you receive the money.
https://www.moneysavingexpert.com/pensions/inherit...
Probably have to claim the difference back.
This will help calculate your tax liability
https://www.moneysavingexpert.com/tax-calculator/
https://www.moneysavingexpert.com/pensions/inherit...
Probably have to claim the difference back.
This will help calculate your tax liability
https://www.moneysavingexpert.com/tax-calculator/
Nicetobenice said:
I presume it's because you are taking it as a lump that pushes you into the higher rate band.
To pay less tax you need to spread when you receive it over the right amount of years.
No I don’t think that’s the case. We haven’t been asked what tax band we’re in (the form we have to fill in asks for our national insurance numbers but we haven’t filled that in yet, so they don’t know), and it’s not only going to one person. To pay less tax you need to spread when you receive it over the right amount of years.
We’re also not talking vast amounts here so it wouldn’t push me into the higher tax bracket. I haven’t worked for nearly a year as I was caring for dad since Christmas and then my mum died just after dad, so I’ve been living off my wife’s wages and my redundancy payout.
srob said:
No I don t think that s the case. We haven t been asked what tax band we re in (the form we have to fill in asks for our national insurance numbers but we haven t filled that in yet, so they don t know), and it s not only going to one person.
We re also not talking vast amounts here so it wouldn t push me into the higher tax bracket. I haven t worked for nearly a year as I was caring for dad since Christmas and then my mum died just after dad, so I ve been living off my wife s wages and my redundancy payout.
In which case you really need to push back with the solicitor and get them to explain exactly why. As you've described it you are correct and you should only pay the lower rate tax.We re also not talking vast amounts here so it wouldn t push me into the higher tax bracket. I haven t worked for nearly a year as I was caring for dad since Christmas and then my mum died just after dad, so I ve been living off my wife s wages and my redundancy payout.
And I should have said in my first post - sounds like a s
tty year to say the least. Really sorry for you.It does seem like HMRC applies a default 45% unless it's paid to a named beneficiary. But it looks like you can claim any excess tax back once the money is paid to you.
It might have been taxed at a higher rate even if you'd been named - that happens when taxable lump sums are taken out of pensions, and the recipient has to claim the tax back.
It might have been taxed at a higher rate even if you'd been named - that happens when taxable lump sums are taken out of pensions, and the recipient has to claim the tax back.
Read this
https://www.gov.uk/tax-on-pension-death-benefits
and from what you describe, then follow the link at the bottom "used up the pension pot and and you have other taxable income"
https://www.gov.uk/tax-on-pension-death-benefits
and from what you describe, then follow the link at the bottom "used up the pension pot and and you have other taxable income"
I had exactly this last year with my dad.
The pension was with Standard Life and was paid directly to my brother and I (took ages though). We are both lower rate tax payers. But the amount we received seemed to have around 25% deducted and to this day I have no idea why. It wasn't a large amount so I just let it go.
The pension was with Standard Life and was paid directly to my brother and I (took ages though). We are both lower rate tax payers. But the amount we received seemed to have around 25% deducted and to this day I have no idea why. It wasn't a large amount so I just let it go.
Thank you all for your advice, it’s justified my belief it’s worth questioning.
The solicitor hasn’t been great so I’m loathed to ask them as I think they’ll just ignore it for months then say it’s not for them to advise on tax. Which is what they’ve done else ware.
The solicitor hasn’t been great so I’m loathed to ask them as I think they’ll just ignore it for months then say it’s not for them to advise on tax. Which is what they’ve done else ware.
Nicetobenice said:
In which case you really need to push back with the solicitor and get them to explain exactly why. As you've described it you are correct and you should only pay the lower rate tax.
And I should have said in my first post - sounds like a stty year to say the least. Really sorry for you.
Thanks. Yes it’s been the worst 12 months of my life without a doubt. And I’m sat here now with a sore gob having had to have a tooth out last week. So that’s one job (of 20+ years), two parents and a tooth I’ve lost in that time, none of which were expected!And I should have said in my first post - sounds like a s
tty year to say the least. Really sorry for you.srob said:
Thank you all for your advice, it s justified my belief it s worth questioning.
The solicitor hasn t been great so I m loathed to ask them as I think they ll just ignore it for months then say it s not for them to advise on tax. Which is what they ve done else ware.
For what it's worth I think Sheepshanks is correct in his post above.The solicitor hasn t been great so I m loathed to ask them as I think they ll just ignore it for months then say it s not for them to advise on tax. Which is what they ve done else ware.
You should be able to claim the extra tax back.
A Will does not dictate what happens to a pension pot.
With each provider you have to nominate beneficiaries. Strictly speaking, it's then the provider trustees who have final say on where death benefits are paid. This 'discretion' is what has allowed pensions to be outside of your estate for IHT purposes (until April 2027).
Where there are no nominations the provider will take into account evidence, like a Will, to help them decide who gets it.
Almost certainly the case he hadn't nominated you and that's why it's being paid to the estate as a lump sum. If that means an overpayment for your personal circumstances you should be able to claim back the difference.
With each provider you have to nominate beneficiaries. Strictly speaking, it's then the provider trustees who have final say on where death benefits are paid. This 'discretion' is what has allowed pensions to be outside of your estate for IHT purposes (until April 2027).
Where there are no nominations the provider will take into account evidence, like a Will, to help them decide who gets it.
Almost certainly the case he hadn't nominated you and that's why it's being paid to the estate as a lump sum. If that means an overpayment for your personal circumstances you should be able to claim back the difference.
PistonHead007 said:
A Will does not dictate what happens to a pension pot.
With each provider you have to nominate beneficiaries. Strictly speaking, it's then the provider trustees who have final say on where death benefits are paid. This 'discretion' is what has allowed pensions to be outside of your estate for IHT purposes (until April 2027).
Where there are no nominations the provider will take into account evidence, like a Will, to help them decide who gets it.
Almost certainly the case he hadn't nominated you and that's why it's being paid to the estate as a lump sum. If that means an overpayment for your personal circumstances you should be able to claim back the difference.
Not sure about this. My dad didn't nominate anyone either. The pension provider asked a few questions about his immediate family. I told them he had two sons and one surviving sister. They decided to pay out to my brother and I and didn't ask to see his Will at all. Money was paid directly to each of us rather than to the estate. Thus was 12 months ago.With each provider you have to nominate beneficiaries. Strictly speaking, it's then the provider trustees who have final say on where death benefits are paid. This 'discretion' is what has allowed pensions to be outside of your estate for IHT purposes (until April 2027).
Where there are no nominations the provider will take into account evidence, like a Will, to help them decide who gets it.
Almost certainly the case he hadn't nominated you and that's why it's being paid to the estate as a lump sum. If that means an overpayment for your personal circumstances you should be able to claim back the difference.
Edit. Just checked and I did send the Will.
Edited by ChrisH72 on Friday 30th October 19:52
Nicetobenice said:
For what it's worth I think Sheepshanks is correct in his post above.
You should be able to claim the extra tax back.
Which I said in the third post.You should be able to claim the extra tax back.
It’s all on Money Saving expert. If he’s a 20% tax payer then he can claim the difference back. Sounds like the solicitor isn’t great.
Thanks again. I had done some googling but sometimes it’s nice to just chat it through too for a sanity check.
Mum and dad divorced 30-odd years ago so mum wouldn’t have been named.
And yes, the solicitor has been dreadful. We paid her to sort dad’s probate out as mum was so sick after dad died we just didn’t have mental capacity to do anything much, but we’ve had to double-check everything she’s done as we’ve found countless errors (which she’s admitted and corrected). Just doesn’t fill me with confidence she’ll help with this, so I’ll try and tackle it myself next week.
Mum and dad divorced 30-odd years ago so mum wouldn’t have been named.
And yes, the solicitor has been dreadful. We paid her to sort dad’s probate out as mum was so sick after dad died we just didn’t have mental capacity to do anything much, but we’ve had to double-check everything she’s done as we’ve found countless errors (which she’s admitted and corrected). Just doesn’t fill me with confidence she’ll help with this, so I’ll try and tackle it myself next week.
Sounds like it's a shame the solicitor was involved with claiming the pension. You didn't even need probate to get it back as it falls outside of the estate anyway.
If the tax has already been paid you're probably best ringing HMRC to try and get it sorted.
I went DIY for probate as I have absolutely no faith in solicitors after we got shafted by the one who dealt with my uncles estate a few years ago. We are about to complete the sale of my dad's flat and the conveyancing solicitor has been hopeless. They are always on holiday, don't respond to enquiries and have blatantly lied about work they hadn't done during the process. Shocking considering what they charge.
If the tax has already been paid you're probably best ringing HMRC to try and get it sorted.
I went DIY for probate as I have absolutely no faith in solicitors after we got shafted by the one who dealt with my uncles estate a few years ago. We are about to complete the sale of my dad's flat and the conveyancing solicitor has been hopeless. They are always on holiday, don't respond to enquiries and have blatantly lied about work they hadn't done during the process. Shocking considering what they charge.
PistonHead007 said:
A Will does not dictate what happens to a pension pot.
With each provider you have to nominate beneficiaries. Strictly speaking, it's then the provider trustees who have final say on where death benefits are paid. This 'discretion' is what has allowed pensions to be outside of your estate for IHT purposes (until April 2027).
Where there are no nominations the provider will take into account evidence, like a Will, to help them decide who gets it.
Almost certainly the case he hadn't nominated you and that's why it's being paid to the estate as a lump sum. If that means an overpayment for your personal circumstances you should be able to claim back the difference.
This is the correct answer. Don't ignore it.With each provider you have to nominate beneficiaries. Strictly speaking, it's then the provider trustees who have final say on where death benefits are paid. This 'discretion' is what has allowed pensions to be outside of your estate for IHT purposes (until April 2027).
Where there are no nominations the provider will take into account evidence, like a Will, to help them decide who gets it.
Almost certainly the case he hadn't nominated you and that's why it's being paid to the estate as a lump sum. If that means an overpayment for your personal circumstances you should be able to claim back the difference.
You receive the net cash plus a tax credit for the 45% tax deducted. If your tax rate is lower than 45% you can reclaim the difference from HMRC. You will need to have received a form confirming the net, tax and gross figures to show to HMRC. Sorting out your personal tax situation is a completely different subject from winding up father's affairs. You would almost certainly need to engage and pay any advisers in your own personal capacity.
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