HMRC may owe relatives of deceased state pensioners refunds of £239 and compensation of £75, following revelations of a systemic error that results in overtaxation of estates. The issue came to light through a letter to a national newspaper tax expert, Mike Warburton, from a concerned executor who discovered the anomaly while handling a friend's estate.
How the Error Occurs
When a pensioner dies, it can take a month or more for the Department for Work and Pensions (DWP) to become aware of the death. During this period, pension payments continue, leading to an overpayment to the estate. In the case handled by the executor, the DWP claimed back £1,198 from the estate. However, when HMRC calculated the tax assessment, it included the full amount of pension paid up to the date of notification of death—including the £1,198 that had already been reclaimed by the DWP. This resulted in the estate being taxed on money it never actually retained.
Executor's Discovery and Complaint
The executor, a retired forensic accountant, noticed the discrepancy and contacted both the DWP and HMRC. The DWP confirmed the correct figure, and an HMRC representative admitted the system error had been present for many years but was not corrected because the amounts of tax involved were usually small. Unsatisfied with this response, the executor lodged a complaint with the chief executive of HMRC. After investigation, HMRC issued an adjusted tax assessment, a refund of overpaid tax amounting to £239.60, and a compensation payment of £75 for the inconvenience.
Expert Warnings and Implications
Mike Warburton, the tax expert who received the letter, highlighted that the mistake was due to human error and data input issues. He warned that many estates could be affected, as the error may be widespread. The case underscores a lack of coordination between HMRC and the DWP, potentially leaving thousands of bereaved families out of pocket. Affected individuals are advised to check tax assessments for deceased relatives and contact HMRC if they suspect an overpayment.
