Income from a pension plan provided by deceased parent

LynWest

HI there, i seem to have started this week full of questions sorry!

I have a new clients whose accounts on the surface looked nice and simple. She then tells me that HMRC caught up with her last year for not declaring income from a pension scheme that pays her about £6000 a year. She didn't declare it because it was taxed at source so thought that that was ok, however, it wasn't because it was being calculated in her personal allowance! The situation has been sorted with HMRC and she has paid everything she owed.

However; my question concerns going forward. The scheme pays her and her only all paperwork is all in her name, but she splits this with her sister 50/50 as a gesture of goodwill with her sister as it was set up to my their deceased dad. She has spoken to the pension provider and they will only pay her as per her deceased fathers instructions.
She wants to only declare 50% of the income and 50% of the tax paid each year on her SA return and she has told her sister to do the same. However, my concern is that if HMRC check up they are going to see that the pension provider has given her double the amount that she is declaring and investigate. Her reply to this was that she would explain that she is paying her sister half. I fear this will not wash with HMRC. I think she should declare the lot and then work out with her sister something privately. Any ideas would be much appreciated. Many thanks

Monsoon

LynWest wrote: »

I think she should declare the lot and then work out with her sister something privately. Any ideas would be much appreciated.

Correct. Unless they get something legal drawn up (no idea what) then this is taxable on her only, for the full amount. If she's not a higher rate taxpayer, and assuming the sister is a basic rate taxpayer, it shouldn't make a difference.

I guess it's a regular gift to the sister and therefore not taxable in the sisters hands (assuming its under the gift limit) and she should pay the sister 50% of the net amount as she's the one suffering the tax.

LynWest

Thanks Monsoon x