Claiming a deferred state pension and not paying tax on it.

IamwhoIam_3

Hi, I hope someone can help. I deferred my state pension for 3 years and now have requested to take a lump sum in April as it is the new tax year. I have income from a company pension and income from my property rental but together these do not go over my personal tax allowance so I should not be a tax payer next year so my deferred pension lump sum should be tax free. My problem is that my tax code has come in for 2012 - 2013 and it shows an "Underpayment Restriction" of £1930 and this puts me over my personal allowance and shows me as due to pay tax on £272. Does this mean I will be classed as a tax payer and therefore due to pay tax on my deferred pension?

xylophone

http://www.hmrc.gov.uk/pensioners/pension-later.htm may assist.
http://www.ageuk.org.uk/Global/Age-Cymru/Factsheets%20and%20information%20guides/FS12%20Planning_for_retirement_fcs.pdf
The 'underpayment restriction' normally indicates that you owe tax for a previous year and yet you are indicating that you don't normally pay tax.

How has the underpayment arisen?

IamwhoIam_3

Hi, I am a tax payer this year 2011 - 2012 as I currently have a job, but I am giving my job up at beginning of April just so I will be a non tax payer from April. The underpayment was due to my house rental income for last year when I was paying tax. I only started renting in Jan 2010.

jamesd

Since you're a landlord you're probably in the self-assessment system and having to file tax returns every year. If so, make an extra payment this year to cover the tax owed. If not in SA, phone HMRC and ask how you can make the payment this tax year to avoid being a tax payer next, explaining the situation to them.

Unless you're in ill health the best option to do with deferred pension is to take the higher income for up to three years worth, assuming you're male and of normal life expectancy without need for the lump sum.