Equitable With Profits Annuities - Prudential - 50% tax charge

[CliveH]

 

If anyone has one of these annuities you should have received a letter from Prudential stating what the tax charge is going to be.

 

All the ones that we have seen so far state that our clients are being put on emergency tax code BR and that their pension annuity is going to be taxed at 50% from February.

 

Clearly something has gone wrong with the data transfer re Prudential taking over these annuities from the old Equitable Life.

 

I would be grateful for any info should you be in the same situation as the clients we are helping at the moment.

 

So far HMRC have said they have not issued BR emergency codes, and Prudential are insisting that they have.

 

We have had one 84 year old lady in tears because her pension is going to fall to half of what she was getting come February.

 

 

 

 

 

 

 

 

[BGD]

Hi Clive - sounds like an admin messup somewhere........

 

 

I've been out of the game for a few years now, but I seem to recall from my dim and distant past: wasn't a HMRC "Basic Rate" (BR) code equivalent to top income tax rate, ie 40%? (rather than 50%).

Has this changed in the past few years?

 

 

 

 

 

 

[Guest Tracker]

As far as I know, a basic rate or 'BR' tax code means tax is deducted at 22% from the total gross income.

[CliveH]

Hi BGD

 

BR can denote an emergency tax code. the 50% rate is the maximum clawback rate the Revenue can apply.

 

The emergency tax code allows HMRC to apply tax at 50% to claw back tax that has not been paid.

 

However in this case the lady in question is 84 years old and pays tax on just a couple of thousand pounds over her personal allowance.

 

This 50% tax clawback is usually applied only after consultation with the Revenue re a known tax bill and where someone does not have the funds to pay the tax demand as a lump sum.

 

This cannot possibly apply in these cases.

 

It has to be a cock up but typically no one is admitting anything.

 

As I say prudential say they have the demand from HMRC and HMRC say that they have no record of a tax liability.

 

What the client has is a letter from the Pru clearly stating-

 

"As part of the process to transfer your annuity from Equitable Life, HMRC have reviewed your overall tax position and have issued us with up to date codes for each of your annuities. We have applied these tax codes to your February 2008 payment. A detailed breakdown is shown at the end of this letter."

 

 

At the end of the letter our client has three annuities in a tabulation- all treated the same. It looks like this as an example

 

Ref Gross payment Tax deducted Net Payment Tax Code

 

XXX 100 50 50 BR

 

 

I cannot get through to anyone at the moment - lines constantly engaged.

 

 

She should be on a Code P for a lady between age 65 and 84 because she is in receipt of age allowance.

 

[CliveH]

 

 

 

http://www.tax.org.uk/advice/emergencytax.html

 

 

For info on tax codes.

 

 

[CliveH]

This from the Daily Express

 

Seems the issue is wider than those who have only been informed of this by via coincidence of their annuity provider changing from Equitable Life to the Prudential.

 

 

Wow!!!!

 

 

All I can say is that Gordon Brown must REALLY want to loose the next election.

 

Daily Express 050208

 

 

"PENSIONERS TO GET £600 ‘SPITEFUL’ TAX BILL

 

 

Pension attack on elderly

 

Tuesday February 5,2008

By Macer Hall Political Editor

 

ALMOST half a million low-income pensioners are to be clobbered by swingeing new tax demands averaging about £600 each.

 

A shock report today reveals that, in the worst cases, unsuspecting retired people will find themselves being hit with a £1,000 bill.

 

They are in line for the punishing “cash and grab” because Gordon Brown’s HM Revenue & Customs is tightening up tax rules for the smallest pensions.

 

It means that many of the most needy retired people will be forced to pay an average of more than £320 extra income tax from next year.

 

They can also expect to be hammered by a backdated claim for the cash – effectively doubling the tax burden – while officials hope to boost Treasury coffers by an extra £135million a year.

 

Last night critics were outraged at the “spiteful” decision to fleece even more cash from the country’s hard-pressed pensioners.

 

Shadow Work and Pensions Secretary Chris Grayling said: “Gordon Brown has got the public finances into a real mess. It looks like a big part of his solution is to put the squeeze on pensioners.” Backbench Tory MP Richard Bacon said: “Some pensioners could get an unexpected demand to pay back as much as £1,000.

 

“Food bills have gone up, fuel bills have gone up and now they are going to have to pay more tax. This is going to affect people on really quite low incomes already.

 

“It’s a relatively low amount of money for Revenue & Customs but could hit pensioners very hard.”

 

 

The income tax claw-back will affect the elderly who receive cash from small occupational pension funds or private savings schemes, paying out just a few thousand pounds a year. For many, the income provides a vital top-up to their state pension.

 

Technically, the cash is liable for income tax. But for more than 20 years the Treasury has not collected the money. Officials blame administrative blunders stretching back to the 1980s for the failure.

 

However, HM Revenue & Customs have now decided they will start collecting it from the tax year 2008-09, and backdate demands to April 2007.

 

They hope to net an extra £135million a year for the Treasury by demanding the tax from around 420,000 pensioners. It means many could be liable for two years’ extra income tax.

 

Mark Wallace, of the TaxPayers Alliance, said: “Pensioners already suffer every day by being forced to pay record levels of taxation.

 

“The idea that they will be forced to pay even more is quite simply disgusting. This is a truly spiteful gesture by Gordon Brown’s Government.”

 

For many pensioners, the demand will be the first they know of the outstanding tax liability. Critics fear that it will affect their claims for financial help like pension credits and council tax benefits.

 

The Low Incomes Tax Reform Group is lobbying HM Revenue & Customs in an attempt to limit the financial burden.

 

John Andrews, the group’s chairman, said: “The sums involved are small for the Revenue, but for someone struggling on a low income this is going to be an enormous blow.

 

“This is bureaucracy gone mad. It will also create chaos, with means-tested benefits for pensioners.”

 

Analysis by the group suggested that a pensioner with a part-time job and a private pension of just £10 a week could have to pay an extra £52 in income tax a year.

 

The group said in a statement: “We believe the action proposed by HMRC to correct its own failings will bear particularly harshly on pensioners with lower or modest incomes.

 

“We also believe that the administrative effort required to make the retrospective corrections proposed is disproportionate to the amount of tax loss.”

 

A spokeswoman for HM Revenue & Customs said: “The vast majority of pensioners pay the right amount of tax. This issue concerns a small number of small pensions that have not been fully taxed.

 

“If a pensioner has not paid enough tax through no fault of their own, we will not seek to collect tax for years prior to 2007-08. Those affected will need to pay tax on all their pensions from 2007-08.

 

This will start through a tax-coding change for 2008-09.

 

“We are working closely with pensioner groups and other stakeholders to explain and communicate this.”

 

The threatened tax claw-back is highlighted in a report from the House of Commons Public Accounts Committee on the tax credit system. They are concerned that thousands of pensioners will be taken by surprise.

 

 

 

>:-(

[CliveH]

Scotland on Sunday picked it up.

 

http://scotlandonsunday.scotsman.com/business/Slipup-leaves-Equitable-pensioners-on.3762429.jp