We're back to this one
The client has been given 4 years of pension arrears. As far as tax is concerned
1.He can either have them all taxed in the current year
2.Or get HMRC to tax it in each of the years to which it relates.
The above I understand
However the client wants to know whether each of the last 4 years benefits will be effected retrospectively by this additional income if he opts for 2. above
I haven't got a clue. Can anyone offer an opinion ?
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Replies (7)
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I presume you are referring to state benefits and the answer will depend on what benefits he is receiving and how much the pension arrears are per year.
How did the arrears arise? Was it an underpayment that the pension provider has just notified or was it a pension he was entitled to but chose not to claim, etc.?
Which benefits are in point?
the income would be included in the tax year that it relates to creating a tax underpayment each year & the tax paid would all be included in the year it was deducted which should in theory create an overpayment which would cover the tax owed.
Further relevant exlanantory information
The client was & is receiving ESA and housing benefits as he couldn't work due to invalidity
The pension receivable is £12k per annum available from the age of 60, which he was 4 years ago
He could have taken his pension then but decided not too as he would lose his benefits
His question is not about tax as the pension was close to the tax free allowance
His worry is that if for tax reasons he were to claim the pension against each of the 4 past years and receive the tax refund would his benefits be cancelled for current years and a refund demanded for the previous years
I can't get a sensible answer from the relevant authorities
I'm not sure about the housing benefit side of the query but I understand that the income limit from pensions for ESA is £85 per week so considerably less than your client is receiving. I would expect the DWP to reclaim the "surplus" ESA he has received (ie £230-£85 pw) but have no idea about the mechanism of this. I am not certain whether it matters whether the ESA is contributory or income based.
There is the problem
He didn't receive the pension in each of the 4 years but rather all this year
In joined up Government if he claims the tax refund by retrospectively allocating the pensions to the separate years will this trigger problems with the benefits ???
It's going to affect something. It's all in here https://assets.publishing.service.gov.uk/government/uploads/system/uploa...
If he's under the age for pension credit they'll ignore the fact that he hasn't taken pension but that won't stop the payment being capital and that affecting the benefit now.