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tax on a lump sum
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peterth125
Posts: 80 Forumite
On my 60th birthday in Dec 2012 I will be receiving a lump sum from a small pension I accrued when opted out for a few years.It is approx £3000 of which 25% will be tax free.The question is at what rate will the other 75% be taxed at? I earn approx £7000 per annum so am not paying any tax at the moment if this helps.
Thanks for reading and hope you can help
Thanks for reading and hope you can help
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Comments
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The question is at what rate will the other 75% be taxed at?
Depends on the type of pension or transaction you are doing.
If this a hybrid pension scheme with a protected tax free cash entitlement in excess of 25% then the whole amount of the protected tax free cash amount will be tax free.
If you are exercising triviality as ALL of your combined pensions are under £15000 in value (or equivalent value) then the the 75% left over is added to your income and taxed under income tax in the year it is paid. Initially it will be treated as month one earnings (so a bit at 40%, a bit at 20%) but you can claim the excess tax back. If you have other pensions, then this option may not be available to you.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
Thank you for the explanation.It is more clear now.Yes it is under the triviality rules as this is the only pension I have.0
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If you are exercising triviality as ALL of your combined pensions are under £15000 in value
I thought it was £18,000?I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.
Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.0 -
It is 18k. It was a typo.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0
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common error, it was 1% of Lifetime Allowance when LA was £1.8m... £18k.
Now LA has reduced to £1.5m, but Triviality remains at £18k0 -
Personal allowance this year is £8105, so you have £1105 left.
So, £750 will be tax free as it's lump sum, £1105 will be within personal allowance so tax free, and £1145 will be taxed at 20%.I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.
Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.0 -
gadgetmind wrote: »Personal allowance this year is £8105, so you have £1105 left.
So, £750 will be tax free as it's lump sum, £1105 will be within personal allowance so tax free, and £1145 will be taxed at 20%.
That's correct for the year as a whole.
But I think the triviality payment will look like he's earning circa £13k per month (it's all paid in one month), so that will be taxed at 40% and he'll have to get a rebate at the end of the year.0 -
OP could also wait until April 6th 2013 when personal allowance goes to £9205.I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.
Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.0 -
I thought the lump sum you take from a pension is tax-free? Or am I caught up in a more complicated debated?It is always the simple that produces the marvellous.
Silence is foolish if we are wise, but wise if we are foolish
I'm like old wine. They don't bring me out very often, but I'm well preserved.0 -
frugalescrow wrote: »I thought the lump sum you take from a pension is tax-free? Or am I caught up in a more complicated debated?
The 25% tax free cash payment is tax free. This thread is about taking 100% of it as cash as it is under the trivial amount limit (25% is still tax free but the other 75% is taxed as income in the year taken)I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0
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