There appears to have been a screw up wrt the taxation of death benefits for those who have died under 75 since 6 April this year.
The Telegraph reports that relatives of pensioners who died during the past month have been incorrectly taxed on inherited pensions because of an HMRC error.
A failing within HMRC's internal systems has led to families of pensioners who died since April 6th before age 75 finding their "death benefits" taxed at their marginal rate leaving them overcharged by thousands of pounds.
This is despite no tax being due as new rules introduced last year, as part of the Government's new pension freedoms, mean anyone who dies under age 75 can bequeath their retirement fund tax-free.
A number of pension firms including LV= and MGM Advantage said relatives of their deceased customers had received incorrect letters from HMRC saying they were being taxed, but that they had managed to act quickly enough to prevent tax wrongly being deducted from people's payments. However, one pension firm admitted that hundreds of deceased customers' relatives have been wrongly taxed, leading to experts to predict the discovery could be "the tip of the iceberg".
Britain's biggest pension firms including Legal & General and Prudential refused to disclose whether dead customers' families had paid too much tax. In a bid to contain the problem pension providers have been ordered to stop reporting death benefits to HMRC until the issue is resolved.
Meanwhile HMRC has denied that anyone had been taxed incorrectly:
"Pension providers that are responsible for operating PAYE and are required to treat these payments as tax free on our strict instructions."Who is to blame and how much tax has been incorrectly levied?
Tax does have to be taxing.
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