Need urgent advice about pension lump sum

chiptech81

Hi

Earlier in the week i posted on here about my dads pension. Basically he had a pension that he paid into for 3 years, this pension then got frozen and he has now been offered to take it as a lump sum.

The letter received from the pension company states:

The sum entitled to is £8116.16
25% is tax free,
The net payment would be £6462.62

Now according to my calculations:-
25% of £8116.16 is £2029.04
So the remainder to be taxed would be on £6087.12
20% tax on £6087.12 is £1217.42
Net payment should be £8116.16 - £1217.42 = £6898.74

Are there any loop holes in the system so he does not have to pay tax or can he claim the tax back?
He is still in full time work.


Thanks

EdInvestor

He can claim back any overpayment of tax.

chiptech81

Please can you explain?

EdInvestor

If he feels he has overpaid tax when the money arrives, he should call up his tax office and get them to adjust his tax code so that the overpayment is corrected. IIRC the tax office applies "emergency" coding to trivial commutation payments like this.

He will be taxed at his normal rate on the pension income (but not on the 25% tax free cash as they say).

chiptech81

I have had a reply today from WH Smith about how they have calculated the sum, the letter states:-

Less the 25%, we then take the tax free amount for a single person tax code from the balance. Between £0 and £2,900 is taxed at 20% and the remainder at 40%.

Can anyone confirm whether this is correct?

EdInvestor

They use an emergency code, he will have to claim the overpayment back.

chiptech81

ok thanks, would they not change it to use the correct tax code?

EdInvestor

chiptech81 wrote: »

ok thanks, would they not change it to use the correct tax code?

They might.But you will lose nothing my ringing up to alert them that it needs doing. Retirees have a tendency to slip through the net, be warned.