Child's dependents pension taxed

[mastermoneybags]

I know that children pay tax but the amount has surprised me. Ds has been awarded a pension from his late dad and the amount paid was £14,000 of which he was taxed over £4,000. This is the first money he's ever had and included back pay at a higher rate than the ongoing monthly payment. He's 10 if that makes any difference. Subsequent monthly payments have been tax free.

You need to go through the papers and pay dates and check the tax codes.

Has he been put on a 'Month1' emergency code?

I work in pensions. We are required to tax lump sums at emergency rate but if you are a lower rate tax payer you can claim the excess back directly from HMRC.

I'll have a look at the paperwork. It only arrived just before Christmas so things were rather hectic and it was a few thousand more than I'd expected him to get so was in a bit of shock about it.

Children have the same tax free allowance as everyone else but the initial payment was probably taxed with an emergency tax code. After 4th April it will be possible to submit a claim showing his whole income for the April 2024-April 2025 tax year. He should be taxed 20% of the amount in excess of £12,570 so the total tax paid on an annual £14,000 would only be £286. Anything paid in excess of that will be refunded. If the payments started part way through the tax year he may not reach the £12,570 threshold at all in y1.

He'll have been paid around £18,000 in the 24/25 tax year

Open a junior sipp (pension) for him and pay all excess over the tax free allowance into it for him. Secure his future and pay no tax 👌

The tax code is 1257L Mi on the first 2 payslips.

The M1 means it he has been taxed using the emergency tax code. So taxed on the full amount rather than just over PA. It will be easy enough to sort out and he will be refunded.

That. Exactly.

It will probably sort itself out once HMRC issue the pension company with a correct code but a call to HMRC might expedite that.

I've had a couple of tax code mess ups recently after (a) a TUPE transfer when we merged with another charity and (b) some double counting of P45 figures when I changed jobs. Although I spent aeons on hold for HMRC the agents could not have been more helpful.

Thank you. Once I have some headspace when he's back at school I'll give them a call and see if it can be sorted. A very rough estimate shows he'd owe tax of around £1,800 for the tax year.

Will I have to wait until this tax year ends first the refund?

I spent over an hour on hold to HMRC only to be told they can't help me without a national insurance number. I explained his age and the fact the pension letter said to phone HMRC and quote the reference number given. They weren't interested in the reference number and told me to contact the pension provider. Ffs.

If you claim child benefit then he should have a Child Reference Number (CRN) which is later used as he approaches 16 to create a NINO (National Insurance Number). You might be able to use that?
commonslibrary.parliament.uk/getting-a-national-insurance-number/

Thank you. The lady search using my NI number, DOB and address and came up with nothing but you'd think have been some information about him as I do get CB for him.

I've got the temporary NI number now so hopefully I can get this sorted with HMRC. I love spending my days on hold 🙄

Not the question you have asked but just wanted to mention that a friend's children received regular dependent's pension payments from their father's (NHS) pension after he died (divorced from their mother). But until the children were 18, their payments went to the mother who used it for their living expenses, I guess kind of in lieu of maintenance payments.

@Chewbecca yes, this is the same thing. The payments are into my bank account in lieu of maintenance. He gets a pay slip but on looking today it's only if the amount differs to his set amount.

I finally got it refunded to the tune of over £3500!

Hi, I was just reading your posts and I am in a similar situation. Can I just ask how did you get a temporary NI number for your child? And then did you file a self assessment on their behalf to get the refund? Thanks