Your browser isn't supported
It looks like you're using an old web browser. To get the most out of the site and to ensure guides display correctly, we suggest upgrading your browser now. Download the latest:

Welcome to the MSE Forums

We're home to a fantastic community of MoneySavers but anyone can post. Please exercise caution & report spam, illegal, offensive or libellous posts/messages: click "report" or email forumteam@.

Search
  • FIRST POST
    • Zudecke
    • By Zudecke 19th Mar 17, 8:37 PM
    • 37Posts
    • 4Thanks
    Zudecke
    Lump sum taxable?
    • #1
    • 19th Mar 17, 8:37 PM
    Lump sum taxable? 19th Mar 17 at 8:37 PM
    Hi all,

    My mum has deferred her state pension for 3 years (in July).

    We want to know the tax liability based on a new financial year, for both scenarios:
    1) financial year with no income
    2) fresh financial year with £9,250 income (from part time work)

    The state pension pamphlet is just directing us in circles and we're tearing our hair out .

    Many thanks

    Z
Page 1
    • Dazed and confused
    • By Dazed and confused 19th Mar 17, 8:50 PM
    • 1,371 Posts
    • 565 Thanks
    Dazed and confused
    • #2
    • 19th Mar 17, 8:50 PM
    • #2
    • 19th Mar 17, 8:50 PM
    In simple terms the tax is calculated according to the tax rate on her other income, ignoring the lump sum so assuming she gets a UK personal tax allowance, currently £11000 and £11500 from April 2017, she could have no tax to pay on the other income so also no tax on the lump sum.

    Remember however you must include all taxable income in your calculations, including things like savings interest (not ISA's) or other pensions, not just wages. The normal state pension payments received need to be included so scenario 1 appears impossible and 2 is understating the income as the state pension doesn't sound like it's included in the £9250

    It is entirely possible wages of £9250 and part years state pension will make op's mum a basic rate payer so 20% tax would be due on the lump sum
    Last edited by Dazed and confused; 19-03-2017 at 9:08 PM.
    • BobQ
    • By BobQ 19th Mar 17, 8:54 PM
    • 9,454 Posts
    • 12,233 Thanks
    BobQ
    • #3
    • 19th Mar 17, 8:54 PM
    • #3
    • 19th Mar 17, 8:54 PM
    Hi all,

    My mum has deferred her state pension for 3 years (in July).

    We want to know the tax liability based on a new financial year, for both scenarios:
    1) financial year with no income
    2) fresh financial year with £9,250 income (from part time work)

    The state pension pamphlet is just directing us in circles and we're tearing our hair out .

    Many thanks

    Z
    Originally posted by Zudecke
    What lump sum
    Few people are capable of expressing with equanimity opinions which differ from the prejudices of their social environment. Most people are incapable of forming such opinions.
    • Flugelhorn
    • By Flugelhorn 19th Mar 17, 8:58 PM
    • 573 Posts
    • 783 Thanks
    Flugelhorn
    • #4
    • 19th Mar 17, 8:58 PM
    • #4
    • 19th Mar 17, 8:58 PM
    Presumably this lump sum https://www.gov.uk/deferring-state-pension/what-you-get
    • Zudecke
    • By Zudecke 19th Mar 17, 9:59 PM
    • 37 Posts
    • 4 Thanks
    Zudecke
    • #5
    • 19th Mar 17, 9:59 PM
    • #5
    • 19th Mar 17, 9:59 PM
    So if the annual allowance is £11.5k and her lump sum is £21k and she has no other income expected for the financial year, what would her tax liability?
    • Dazed and confused
    • By Dazed and confused 19th Mar 17, 10:13 PM
    • 1,371 Posts
    • 565 Thanks
    Dazed and confused
    • #6
    • 19th Mar 17, 10:13 PM
    • #6
    • 19th Mar 17, 10:13 PM
    There wouldn't be any tax liability.

    But how are you expecting her to have no other income? What is happening to the normal state pension payments which are presumably payable once the lump sum is taken?
    • kidmugsy
    • By kidmugsy 19th Mar 17, 10:18 PM
    • 9,317 Posts
    • 6,109 Thanks
    kidmugsy
    • #7
    • 19th Mar 17, 10:18 PM
    • #7
    • 19th Mar 17, 10:18 PM
    There wouldn't be any tax liability.

    But how are you expecting her to have no other income? What is happening to the normal state pension payments which are presumably payable once the lump sum is taken?
    Originally posted by Dazed and confused
    Exactly. If she is hoping to get the lump sum free of tax she'd have to restart her state pension late in the tax year 17/18 so that she'd be under the Personal Allowance.

    Or even late in 16/17: I wonder whether the Pension Service could rise to the challenge of crediting her with her pension starting in the next few weeks.
    • xylophone
    • By xylophone 20th Mar 17, 1:06 AM
    • 21,601 Posts
    • 12,420 Thanks
    xylophone
    • #8
    • 20th Mar 17, 1:06 AM
    • #8
    • 20th Mar 17, 1:06 AM
    http://www.litrg.org.uk/tax-guides/pensioners-and-tax/what-state-pension-deferral


    http://www.litrg.org.uk/tax-guides/pensioners-and-tax/what-tax-do-i-pay-my-state-pension-lump-sum
    • Bettie
    • By Bettie 20th Mar 17, 1:24 AM
    • 982 Posts
    • 1,118 Thanks
    Bettie
    • #9
    • 20th Mar 17, 1:24 AM
    • #9
    • 20th Mar 17, 1:24 AM
    I think I am right in saying that you can take the state pension and defer the lump sum to a more favourable tax year so avoiding tax. As the interest rate is better than any of my other accounts then I am leaving mine in for a bit longer.
    • Zudecke
    • By Zudecke 20th Mar 17, 5:31 PM
    • 37 Posts
    • 4 Thanks
    Zudecke
    I don't think you can take the state pension whilst continuing to defer the lump sum accrued? I thought it was one or the other? And once you START taking the pension, the lump sum HAS TO BE released to the pensioner?

    And yes, her only income in the theoretical scenario would be the £139 p/W state pension.

    So in the scenario where she's getting £139p/w state pension and thus releases the lump, how is her liability calculated?

    (assuming, again, no other income whatsoever, nor any capital or investments)
    • greenglide
    • By greenglide 20th Mar 17, 5:45 PM
    • 2,673 Posts
    • 1,685 Thanks
    greenglide
    I don't think you can take the state pension whilst continuing to defer the lump sum accrued? I thought it was one or the other? And once you START taking the pension, the lump sum HAS TO BE released to the pensioner?
    But what you can do is choose which tax year the lump sum is taxed in. I have never understood how this works but it can move it to a tax year with less or no tax liability!

    The lump sum must be taken when payment of the pension is taken.
    • xylophone
    • By xylophone 20th Mar 17, 6:05 PM
    • 21,601 Posts
    • 12,420 Thanks
    xylophone
    So in the scenario where she's getting £139p/w state pension and thus releases the lump, how is her liability calculated?

    Have you read the links in my post above?
    • Zudecke
    • By Zudecke 20th Mar 17, 6:56 PM
    • 37 Posts
    • 4 Thanks
    Zudecke
    Have you read the links in my post above?
    Originally posted by xylophone
    I did, thank you so much.

    Unfortunately it was just as cloudy for me as the official pensions pamphlet that we have. That theoretical scenario is still unclear to me... (go easy)
    • kidmugsy
    • By kidmugsy 20th Mar 17, 7:04 PM
    • 9,317 Posts
    • 6,109 Thanks
    kidmugsy
    So in the scenario where she's getting £139p/w state pension and thus releases the lump, how is her liability calculated?

    (assuming, again, no other income whatsoever, nor any capital or investments)
    Originally posted by Zudecke
    Income other than lump sum = 52 x £139 = £7228.
    Therefore liability to income tax = nil.
    Therefore tax on lump sum = nil.
    • BobQ
    • By BobQ 20th Mar 17, 9:16 PM
    • 9,454 Posts
    • 12,233 Thanks
    BobQ
    Originally posted by Flugelhorn
    The says his Mum deferred her state pension in July for three years. I took that to mean that she qualified for the state pension in Jul 16.

    If so according to the link above you can only get a lumpsum if you reach state pension age before 6 April 16.
    Few people are capable of expressing with equanimity opinions which differ from the prejudices of their social environment. Most people are incapable of forming such opinions.
    • kidmugsy
    • By kidmugsy 20th Mar 17, 9:36 PM
    • 9,317 Posts
    • 6,109 Thanks
    kidmugsy
    The says his Mum deferred her state pension in July for three years. I took that to mean that she qualified for the state pension in Jul 16.
    Originally posted by BobQ
    I guessed that it meant she had deferred since July 2014. But you may be right; sometimes there's no telling what bad English means.
Welcome to our new Forum!

Our aim is to save you money quickly and easily. We hope you like it!

Forum Team Contact us

Live Stats

3,282Posts Today

8,455Users online

Martin's Twitter