Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1698925426224.pdf (United Kingdom)
The Baroness Altmann CBE Minister for Work and Pensions (Lords) 4th Floor Caxton House Tothill Street LONDON SW1H 9DA 0207 340 4000 www.gov.uk/dwp 2nd February 2023 Dear Ros, May I begin with thanking you for the very valuable participation on the Bereavement Benefit (Remedial) Order 2022 debate on 17 January 2023.

During the debate, you asked about how we will ensure that the process works smoothly regarding the taxation of retrospective lump sums of Widowed Parent’s Allowance.
In particular you asked whether we plan to flag eligible claimants to HMRC and whether we will be implementing measures to protect claimants as a result of paying these sums gross, with the risk of them being spent before the tax liability has been settled.

My officials have liaised with those from HMRC who have confirmed that there is a live data feed from DWP.

This provides HMRC with award details for PAYE customers.
We have also inserted agreed text into the Widowed Parent Allowance (WPA) award letters to advise customers that they may incur a tax liability.

If claimants pay tax under PAYE, they do not need to contact HMRC.

DWP will tell HMRC about any payments of WPA including retrospective lump sums.
Self- assessment claimants, however, will need to either declare their WPA retrospective payments on their self-assessment tax returns for each tax year or write to HMRC to include these payments on previous tax returns.

You also asked how lump-sum awards will be treated for tax credits purposes.

These will be treated as income.

They will be assessed in the year of payment rather than entitlement so no adjustments to past years will be needed.
It is common practice to treat social security benefits in this way for tax credits purposes and we would not want to do otherwise as that could set a precedent.

Even if this were to occur, it would not mean aligning with Universal Credit given that the capital rules operate in different ways.

You also asked whether, for the purposes of means tested benefits, retrospective payments of WPA would be affected by the rules on deprivation of capital.
We have a duty to ensure that means-tested benefits are paid to those who need them most whilst also ensuring fairness, for the taxpayer.

So, the deprivation of capital rules is intended to apply to those who act with the intention to access benefit or get more benefit.
Therefore, provided any capital is spent reasonably and not with the purpose of accessing, or getting more benefit, claimants should not be treated as having notional capital (notional capital is taken into account in the same way as “normal” capital) where they get a retrospective lump sum.

Finally, you mentioned the importance of reaching out to claimants.

I can assure you that we are pursuing a comprehensive communications strategy with our key stakeholders to publicise this change.
We plan to use DWP channels and partners to disseminate the change, including the DWP external stakeholder newsletter, other stakeholder forums, bespoke email communication to stakeholders and of course GOV.UK.

We will also be sharing key information with our operational staff.
Furthermore, we have been collaborating closely with key external stakeholders such as the Childhood Bereavement Network, who will be using their networks to publicise the change and will be producing material in collaboration with DWP to reach out to potential claimants.

I hope this clarifies our position.

I am placing a copy of this letter in the House Library.

VISCOUNT YOUNGER PARLIAMENTARY UNDER SECRETARY OF STATE FOR WORK AND PENSIONS (LORDS)