Dependency pension and children paying tax

[paul1506uk]

Hi, looking for some guidance if possible. My two step-daughters' father passed away last September, and it turns out he had two pensions which have both agreed that his daughters (aged 14 and 16) will receive monthly payments as they were his dependents still (he paid maintenance for them both until his death). However, it looks like both are being taxed on the monthly payments. As both are still in full time education, and the payments will not go above the tax-free earnings threshold, does that mean they can reclaim the tax paid, and if so how (especially as the 14 year old doesn't even have a national insurance number or anything yet). As I say, any help would be appreciated

[PallasAthena]

Income tax rules rules apply to under 18s the same way they apply to adults so each is entitled to their own tax free allowance, ie a personal allowance of £12,570 in current tax year. I think what's happened is that because HMRC currently have no tax record for them HMRC haven't told the pension provider what tax code to use. If the pension provider has no tax code the default is to deduct tax from the first £ (ie no personal allowance) at basic rate of 20% and show this as tax code BR. Is that what has happened here, the pension payments are using tax code BR? [BR = Basic Rate]

Usually these things get sorted out between the pension payer and HMRC and the tax paid will be refunded once HMRC tell the pension payer what tax code to use, but it can take a couple of months before it gets sorted.. Call the pension provider and ask if they are dealing with HMRC on this or whether you need to contact HMRC.

[paul1506uk]

Thanks for the reply. We've not had a statement or anything from the pension provider to explain the breakdown of what the girls have received, but the difference between what they were told they'd receive and what they actually have received is around 20% down, so it sounds like what you have suggested has happened. I will try and contact the pension provider to see if they are dealing with HMRC.

[PallasAthena]

And the pension provider should be sending the step-daughters a pension payment slip, similar to the payslip someone in employment gets, to show how the amount paid has been calculated. Ask them for that as well.