Triviality Rules and Personal Tax Allowance. Help Please.

ATF101

Hi,
I am planning on finishing my part time job at the end of January and that will leave a gap until I collect my state pension in May.

I have a single small company pension pot of £8500 and plan to take this as a lump sum under triviality rules in January. I understand 25% of this will be tax free. My question is can any of the remainder be offset against my personal tax allowance for the year 2011/12.
My total earnings to the end of January will be of the order of £6000 and I have a full allowance of £7475.

I don’t really need this money at this stage just seeking the most tax efficient method of utilising this lump sum.

dunstonh

It is treated in the tax year you crystallise the benefits. So, if you do it in Jan 2012, it will be treated as being taken in the 2011/12 tax year.

McKneff

So why not leave it where it is until mid April 12 seems the sensible thing to do.

ATF101

Thank you to both Dunstonh and McKneff .

As I understand it therefore the non Tax free balance of the lump sum will be treated as earned income in the tax year in which it is drawn.

As a female of 60, my pension for the tax year 2012/13 will absorb most of my tax allowance hence the reason for investigating this option at this point. I will now consider the impact of deferring this until Tax Year 2012/13 and then perhaps postponing my state pension until I have utilised all of my allowance.

I believe this will then provide an increased state pension as a result of the postponement.

ATF101

Just for clarification.

Does it follow therefore that all and not just 25% of a triviality payment can, in theory, be tax free where the total income in the tax year is equal to or less than a personal allowance.

Presumably the provider will make the payment on the basis of 25% free of tax with the balance taxed at 20%. That is then recovered at the end of the tax year. Have I got that right?

Thanks for all your help.

molerat

As the trivial payment will be taxed at source on a 747LM1 basis some of it will attract 40% tax. It can be reclaimed in year though, you do not have to wait until year end.