Pension arrears
You may have been following the story over the last year about the government error in calculating some married women’s state pensions. It’s estimated that between 70,000 and 100,000 women have been underpaid their pension for the last 20 years. This has raised questions about how HMRC will tax the arrears when they are paid. There was a call for them to be tax free and that HMRC was considering this. As yet there’s been no statement on the matter.
Taxing pensions
There are special rules for taxing lump sum state pension payments which result from someone choosing to defer their pension, but not for lump sums resulting from a miscalculation of pension entitlement. It seems that the general tax rules will apply. These say that the state pension is taxable for the year it was due to be paid. That means any arrears relating to the period prior to 6 April 2017 are beyond HMRC’s reach. Arrears for later periods should be reported to HMRC which may result in a tax bill (see The next step ). But as any tax will only be a small fraction of the arrears of pension received, this shouldn’t pose too much of a problem for those involved.
The government will be paying arrears of pension to many thousands of married women. HMRC cannot demand tax on the arrears relating to periods prior to 6 April 2017.