Most Unfair

This case is possibly the most unfair situation I have ever seen.

A young widowed Mum dies suddenly in tragic circumstances leaving two small children to be looked after by Granny.  Granny personally settles  Mum's debts, pays for the funeral and takes care of the children. There were no assets in Mum's estate only debts.

Death occured on 19 May 2006.  Out of the blue in September 2008 Granny received a letter indicating that Mum's estate had been entitled to a death in service gratuity from the NHS.  Granny tries to claim the amount but under the NHS rules had to get a formal grant of probate.  This took time and money due to the complications in the case.  Probate was granted in December 2009.  The gratuity was paid in January 2010.

The scheme administrator had been notified of the death on 19 June 2006 by Mum's line manager no notification of the gratuity was made directly to the family until the September 2008 letter.

And guess what?  As the payment was made more than two years after the administrator was notified of the death it is taxable under para 13c part 2 of schedule 29 FA 2004 at 40%.

Any ideas anyone?  I have tried S118(2) TMA 1970 but have been told  " whilst I can sympathise..... we have no discretion when payments are made outside of the two year period.