Tax implication if pension paid immediately??

Golfmad

Hi I am 58 and I recently took a redundancy package from my job. my last day of work was 30th September. My redundancy payment was £40k (£30k tax free and I paid tax at 20% on remaining £10k). I opted to take my company pension early from Oct 1 which gives me a tax free lump sum of £56k and a pension of £18,500 pa. Someone has just said to me that if you take your pension straight after redundancy without a break in between there is a tax implication on your Tax free £30k..Is this correct can anybody help???:embarasse

Rolo_Tomasi

The only time I have ever heard of any potential problems is where people have asked their employers to pay any redundancy payments over £30k into their pension thus increaseing the tax free amount that can be taken from the pension fund.

As this is not the case I don't think you will have any tax problems.

Mr_Taxtastic

This is not my area of expertise but if I remember correctly from my studying days there is potentially an issue.

The £30,000 tax free exemption can be a nightmare at the best of times however, a termination payment to some one near or over retirement age has added issue.

Essentially, HMRC may argue that the payment is not for termination of your contract but is instead a payment from an unapproved pension scheme upon retirement and is fully taxable. The £30,000 exemption only applies to termination payments.

I was taught that ideally, people that are around retirement age who receive termination payments should get another job, no matter how menial, in order to show the Revenue that they were not retiring and it was therefore not a payment upon retirement.

I can not advise on how HMRC will regard your situation as I do not deal with this in day to day practice. Hopefully some one with more experience maybe able to advise.