Income not declared on 2 pensions.

[Broadcaster]

I'm trying to help an older friend sort out her and her husband tax ahead of making their will.
Here is their scenario:
She has worked all her life paying PAYE and has recently retired from her part-time job. She has two very small pensions - one from a UK company paid in sterling to her bank account in the North of Ireland,(270 sterling per month) the other from an Irish company that she worked with for 12 years - again small pension - about €350 per month.
She tells me she has not completed a tax return for many years believing that what she paid under PAYE in her part-time job covered all she needed to pay. This means that her sterling and other pension have not been declared for tax purposes. I estimate her income before taking these two pension into account comes to approx €27k. Her husband, (retired) also has a contributory state pension and one from his from job totally €26k. These have been declared under his own tax return.

She now wants to get her will sorted and will leave her assets to her 3 adult children. She still doesn't see the need to declare the sterling pension and questions how anyone would know about it apart from her children. In order for her children to access that account in the north, I assume they would, upon her death, have to submit a death cert but she is wondering now if the Irish tax authorities will find out about it at that stage. Needless to say I have advised that she sort this one out with the tax authorities here but she seems content that because the bank account is in the UK, there will be no tax to pay on it!!

The question I have is this, does the Irish tax authorities have some arrangement with the UK tax people to cop this. I can see a big tax bill awaiting the children when they come to sort out their inheritance. Then again, I'm not sure how revenue find these things!

 

[Marsupial]

She still doesn't see the need to declare the sterling pension and questions how anyone would know about it apart from her children.

The question I have is this, does the Irish tax authorities have some arrangement with the UK tax people to cop this. I can see a big tax bill awaiting the children when they come to sort out their inheritance. Then again, I'm not sure how revenue find these things!

So, in essence what she is asking you is to clarify whether she can continue to evade paying tax on her UK pension (and Irish pension if paid gross?) if Revenue are unlikely to find out about it! Have you thought of telling her that Saint Peter takes a very dim view of tax evaders!

The amounts are small so she'll probably get away with it, as Revenue have bigger fish to fry. The problem may arise when the executor files the Revenue Affidavit (SA2) which, presumably, would have to include the balance in her UK bank account.

 

[elcato]

I suspect her small pension was indeed covered by revenue either by way of emergency tax or correct tax bands. She should have a payslip for you to check ? She should approach an accountant and sort it out now. This happened to a friend of mine and it delayed probate by about 2 years while they chased down documents. Also she could live for another 20 years and then the problem will be greater.

 

[Broadcaster]

Thanks Shirazman and elcato. No, her payslip only covers her earning from her part-time job.
Yes, I think she is hoping revenue will turn a blind eye if they discover her UK account. I also think she believes I'm being alarmist when I advise declaring it, pay the tax and move on. To be honest this is more about her making her will than sorting her taxes. Her only regret would be passing on the problem to her children and that is what I am warning her about. Will it all come out during probate? Maybe not if the children can close the UK account, take the money and keep their heads down. Not a great way to continue but there you go.

 

[elcato]

No, her payslip only covers her earning from her part-time job.

I meant if she is getting a pension I'm pretty sure they're obliged (the pension providor) to give a payslip solely for the pension.* She probably gets it once a month and throws it in a drawer.

*This is how I know it works for some friends but I don't work in the pension industry.

 

[Broadcaster]

I only know that her UK pension is paid directly into the N.I. bank account every month without any tax deducted. She knows she is responsible for declaring that herself! She gets a statement at the end of the year to show the monthly amount, no tax as it based in the UK.

 

[Clamball]

I would think the revenue will calculate the tax owed when they become aware of the account. So your friend can make them aware of it now or she can let it lie until she dies. She can also try and rope her children in to keeping the account secret after she dies to avoid paying tax.

She should sort it all out now, and not tie the children up in lies and deceit when she dies but she seems to not want to go that route. I question why she asked for your help? She seems to have a good understanding of her actions and outcomes so does not seem to be in need of help. If I were you I would politely step back and then report the undeclared activity to revenue https://www.revenue.ie/en/corporate/assist-us/reporting-shadow-economy-activity/reporting.aspx

 

[cloughy]

There could be further penalties levied under the foreign assets, so even if making voluntary disclosure 15/20% on top of interest which is 8% per year. Non voluntary disclosure this penalty increases to 40%.

I am not sure if foreign pension would be deemed as foreign asset, or treated as any other mon disclosed income but something else to consider.

 

[T McGibney]

She should first obtain proper professional advice from an accountant or tax specialist on the various avenues open to her to correct this. I'd suggest registering for income tax, completing tax returns for a number of back years (the number to be decided upon based on an assessment of her case), paying the liabilities arising on those returns, and filing a return annually going forward.

Talk of evasion and voluntary disclosures etc is overkill and probably wholly unnecessary at this point based on the limited information provided, but this will depend on the specifics of her case.

 

[BlackandBlue]

It is also possible that if the actual underpayment is not massive that it will simply be recouped by adjusting down her future tax credits.
But getting specific advice might be of benefit.

 

[EFCAH84]

“if the foreign pension is less than €5k a year, the intention of Revenue is that the full effects of the disclosure regime do not apply and making a disclosure for the previous 4 years is sufficient”

This information came from another older post. Not too sure if this is true or still stands but it might be of help.