Mumsnet Talk

Please note I'm not against paying tax per-say and both myself and my late husband have worked and payed tax all our lives. My husband worked for a very well known supermarket for 20 yrs + and had a life insurance, he was not classed as a 'high earner'. Although we've had some difficult times in our marriage financially but he was always assured that upon death myself and our 2 children would be provided for.... He sadly passed away unexpectedly mid jan aged 56 his insurance and pension have come through and I was and sad and to see that if the money is paid in a lump sum it's taxed at the rate of 55%. I feel that the pension plan my late husband was in had led him to believe with the promise of £££ lump sum after death, is far from the true amount they actually pay....AIBU to feel sad that my children ( 23, 28) will not benefit as much as my husband wished after his sad death? and think this is too much to take from a family in need? My son gets wed in April and this pension would have been a treat from his father that he couldn't afford in life? (please be gentle with me we only cremated him on Thurs) xx

I am sorry your husband died. Truly.
Lots of people work very hard and inherit nothing/have nothing to leave to anyone.

45% of 'something' is better than nothing.

Again. My sympathies to all of you,

I'm so sorry about your husband's death.

Was he already drawing the pension before he died?

Is there a pension and separate life insurance, or just a pension that is now passing on his death?

JB it was a separate pension and life insurance he wasn't drawing any, thank you ladies for your kind words. Thesecondcoming I appreciate what you're saying but also feel the tax man is being really greedy too. I was not entitled to any help for funeral costs because his pension amounted to more than £2000 even though they told me to claim it was just more stress that I didn't need.

I think this is probably not the best forum for this.

Try here: forums.moneysavingexpert.com/forumdisplay.php?f=19

According to this:

www.hmrc.gov.uk/pensioners/passing-tax.htm

If it was a company pension and he wasn't drawing from the pension, then it would be tax-free up to £1.5 million.

So I think you need to get more specialist advice and take special care with this.

So sorry for your loss. I agree, you should get specialist advice.

Who informed you about the tax? Maybe that person got the wrong end of the stick?

I do think the tax man is greedy in this country (seriously!). They always say Britain isn't so bad tax-wise. Not so sure. I don't like the fact that with inheritance tax, they tax the estate rather than each beneficiary. So an estate that has four beneficiaries will be taxed the same was as one that only has one beneficiary.

Mad.

And the threshold is so low, when compared to property prices these days...

first of all, may i offer my condolences on the loss of your husband? i'm sorry for your loss xxx

secondly, yanbu AT ALL. 55% going straight to the tax man is ridiculously greedy- imo, the government should sort out their own lot & put things on a more even footing, tax & money wise.

Pensions are a bit of a gamble. My MIL retired at 55 on a pension that most working people could only dream of having all to themselves every month as disposable income.
However she could have not made it to 60, my grandparents both died young from cancer and never saw any of their pensions.
I'm in two minds as to whether they are still a good investment or a pyramid scheme.

Really, get some advice. When investment income is taxed at source sometimes it can be incorrect. Do not assume that this is end of matter. Gather everything you have relating to this and get advice from tax office or citizens advice. So sorry about your husband

Sorry for your loss x

Yeah it's shit, isn't it?

Very sorry for your loss, he was really young

I would get some money advice if I were you if it should have been tax free up to 1.5 million - I'm fairly sure you wouldn't be complaining about it if you got 1.5 million as that's a fortune.

I am very sorry for your loss and also shocked it is taxed at 55%. You mention he was not a high earner so I'm guessing he was careful and managed to put aside money for future provision by not splurging out on stuff.

It has made me question the extra life insurance my DH has and will review it with him.

Salsmum. So sorry for your loss. This sort of situation just makes it all worse I agree 55% is steep and second those saying its worth getting advice

I am so sorry for your loss.

There are a lot of tax insentives when paying into a pension and people could use that to make a significant profit on their investment. So the schemes are designed to dissuade people from taking large lump sums. You could probably take 25% of the money tax free, depending on the type of scheme. You do need to get advise from a professional.

This link might be helpful:
www.pensionsadvisoryservice.org.uk/occupational_pensions/death_benefits

Sorry for your loss.

Try again

Thank you all so much for your help and condolences the info was sent to me by his pension providers (Scottish Life) and the 55% taxable lump sum option was quoted in writing by them. xx

Hi salsmum. I am going to sound very matter of fact now so do forgive me. It appears from the link that if you take the lump sum, as your husband was under 75 then some of the lump sum should be tax free. Check that allowance has been included. There may be other more beneficial options for you. Long time since I studied tax but get some rust free advice

salsmum, sorry to hear you lost your husband at such a young age.

Could you not get a lump sum and then not have to pay such a hefty tax bill?

It's truly shocking. I'm not a tax expert. Please talk to a professional about this.
You'll have to pay for their services, but surely it would be worth it.

Lgb you sound fine x wowooo that IS the lump sum tax deduction of 55%. x

Sorry. That read wrongly.
I meant to say is there an alternative to the lump sum, thereby not having to pay the 55%. ?

Give them a ring and see what allowance is. They should have put it on quote. I have had problems with Scottish widows myself with mistakes on my policies. Get them to send you a revised quote. Honest to god when people are bereaved they should take more care and look at personal circumstances xxx

I would ask SL to explain how the tax charge arises.

The tax position depends on the type of lump sum paid, what kind of scheme he was in and the age of your husband at death as, as others have said, whether your husband's total pension pot exceeds £1.5m.

You say your husband was 56 and because you refer to Scottish Life as the provider, I am guessing this was a personal pension. The only question left is what kind of lump sum it is. There are various technical kinds defined in tax legislation and they are all treated quite differently.

If the lump sum is an "annuity protection lump sum" (which might be the case if your husband had already used his pension fund to buy an annuity), the rate of tax is 55%. However, if your husband was not receiving any benefits at the date this type of lump sum may not be relevant.

Where no benefits were in payment from the policy, the lump sum payable would usually be a "uncrystallised funds benefits lump sum death benefit". This is taxed at 55% if the member was over age 75. However, where the member is below that age, the lump sum should be tax free (unless the £1.5m point is relevant).

You should go back to SL and ask for more details and if they still say tax is due, consider taking your own advice if you are not happy with what they say.

Should add I am not a tax adviser or an IFA so don't know all there is to know about this - my comments were just to give you sufficient info to talk to the provider.

Hi - I work in pensions (although not an IFA) and just to echo what GooseyLoosey says, it is only in quite unusual circumstances that a lump sum paid out on death would be subject to any tax at all, let alone 55%.

Insurance companies/pension providers' communications can be clear as mud sometimes and they may have mentioned the 55% in connection with one of these unusual scenarios, rather than the normal way things would work. You should phone them up and ask, and I'd specifically say ask them to confirm what sort of lump sum it is within the tax rules (eg. is it an uncrystallised funds benefits lump sum death benefit like GooseyLoosey mentioned) and why the 55% is being imposed - this sounds like something called a "lifetime allowance charge" which would only apply if benefits taken out overall were of a value over £1.5m.