The Lemon Fool

Hi. I would really appreciate some help in solving this question please.

Sadly my mother has passed away recently.
She had a very small standard DC (self contributed to,) personal Pension with a Pension Company.
The pension is valued at £10K. No annuity was taken. Its in cash.
She was 75& 2 months at death.
Her estate is to us 3 sons. We are also the executers.

Question: Should the Pension Company give us 3 sons the full £10K back to us and then we would have to declare and pay appropriate taxes individually .
OR as they are proposing: deduct at source 45% themselves, then releasing the balance to us?

Advice very much appreciated. Thank you.

FLY7879 wrote:Hi. I would really appreciate some help in solving this question please.

Sadly my mother has passed away recently.
She had a very small standard DC (self contributed to,) personal Pension with a Pension Company.
The pension is valued at £10K. No annuity was taken. Its in cash.
She was 75& 2 months at death.
Her estate is to us 3 sons. We are also the executers.

Question: Should the Pension Company give us 3 sons the full £10K back to us and then we would have to declare and pay appropriate taxes individually .
OR as they are proposing: deduct at source 45% themselves, then releasing the balance to us?

Advice very much appreciated. Thank you.

I suspect that the pension company is correct and that it is up to you assuming as seems to be the case that the pension trustees accept that you three are equal beneficiaries. Or are they paying you as Executors of your mother’s Will? A pension is usually held outside of the estate, that is it does not form part of the estate. It will then be up to each of you to reclaim tax to reduce the charge to your marginal rates. If you or any of the beneficiaries pay tax at the higher rate then of course no tax will be refunded to that beneficiary.

Dod

Dod101 wrote:

FLY7879 wrote:Hi. I would really appreciate some help in solving this question please.

Sadly my mother has passed away recently.
She had a very small standard DC (self contributed to,) personal Pension with a Pension Company.
The pension is valued at £10K. No annuity was taken. Its in cash.
She was 75& 2 months at death.
Her estate is to us 3 sons. We are also the executers.

Question: Should the Pension Company give us 3 sons the full £10K back to us and then we would have to declare and pay appropriate taxes individually .
OR as they are proposing: deduct at source 45% themselves, then releasing the balance to us?

Advice very much appreciated. Thank you.

I suspect that the pension company is correct and that it is up to you assuming as seems to be the case that the pension trustees accept that you three are equal beneficiaries. Or are they paying you as Executors of your mother’s Will? A pension is usually held outside of the estate, that is it does not form part of the estate. It will then be up to each of you to reclaim tax to reduce the charge to your marginal rates. If you or any of the beneficiaries pay tax at the higher rate then of course no tax will be refunded to that beneficiary.

Dod

If your mother had filled in an expression of wishes form naming you as nominated beneficiaries then the pension company should pass on the drawdown fund to you as beneficiaries without incurring IHT. However since your mother died after age 75 you will have to pay tax at your marginal rate when you withdraw the funds.
If she hadn't filled in an expression of wishes form then the pension provider may decide that they should pass it to the estate where it would be subject to IHT however this would be at 40% and I would have thought that it would be upto you as executors to pay the IHT rather than themselves paying it.

ursaminortaur wrote:If she hadn't filled in an expression of wishes form then the pension provider may decide that they should pass it to the estate where it would be subject to IHT however this would be at 40%

That would be a bizarre thing for them to do though, wouldn't it? They could easily look at the circumstances and give it to the offspring directly.

Scott.

ursaminortaur wrote:

Dod101 wrote: I suspect that the pension company is correct and that it is up to you assuming as seems to be the case that the pension trustees accept that you three are equal beneficiaries. Or are they paying you as Executors of your mother’s Will? A pension is usually held outside of the estate, that is it does not form part of the estate. It will then be up to each of you to reclaim tax to reduce the charge to your marginal rates. If you or any of the beneficiaries pay tax at the higher rate then of course no tax will be refunded to that beneficiary.

Dod

If your mother had filled in an expression of wishes form naming you as nominated beneficiaries then the pension company should pass on the drawdown fund to you as beneficiaries without incurring IHT. However since your mother died after age 75 you will have to pay tax at your marginal rate when you withdraw the funds.
If she hadn't filled in an expression of wishes form then the pension provider may decide that they should pass it to the estate where it would be subject to IHT however this would be at 40% and I would have thought that it would be upto you as executors to pay the IHT rather than themselves paying it.

As I have just said, I do not think IHT would apply in any case. 45% is an income tax rate in the absence of a Tax Code and I think my earlier comments apply.

Dod

swill453 wrote:

ursaminortaur wrote:If she hadn't filled in an expression of wishes form then the pension provider may decide that they should pass it to the estate where it would be subject to IHT however this would be at 40%

That would be a bizarre thing for them to do though, wouldn't it? They could easily look at the circumstances and give it to the offspring directly.

Scott.

Yes, I wasn't saying it was likely just a possibility. I was just trying to cover all the bases since I couldn't understand where the 45% deduction at source was coming from. I think Dod's idea, in the following post, that it might be from the application of an emergency tax code since they don't have the tax codes of each of the beneficiaries might explain it. If the OP can confirm that then they would be able to contact HMRC after the payment and get any excess tax paid because of the emergency code use refunded (which it should be anyway at the end of the tax year).

FLY7879 wrote:Sadly my mother has passed away recently.

Welcome to The Lemon Fool!

I am very sorry to hear about your mother. I hope you find the information you seek here and that posters take into account the loss you must be feeling at this time, whilst dealing with the inevitable stress of it all.

Chris

Thank you all, including Dod, Scott for your time in answering. Thank you also Chris for your kind words.

I agree with the comments. I don’t believe it’s a IHT issue. I believe the Pension Company just cover themselves by deducting the 45% at source under the mantra of something call Special Lump Sum Death Charge or Emergency tax which I don’t agree with. I believe they should pay us the full amount and we then liable for our own Tax affairs at marginal rates.

Anyway I’ll have to continue talking to them but thanks again everyone. Very kind of you.

All the best and look forward to more reading on these boards as both interesting and helpful.

Mark.