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State Pension Lump Sum and Higher Rate Tax
Niggles
Posts: 75 Forumite
The situation is that I am just a higher rate tax payer and due to get my State Pension in July 2014. I will therefore pay 40% tax on all of it.
If I take out an immediate vesting pension I can reduce my income to below HR tax.
If I put off taking my SP till March 2016 I can then take it as a lump sum and have it taxed at a lower marginal rate of 20%.
The figures would look something like this.
Gross income 43,000 for 14/15, 44,000 for 15/16
SP lump sum from July 2014 to March 2016 10,500
Take out immediate vesting pension in 15/16 for £2,880 net £3,600 gross
New gross income 40,400 for 15/16, so marginal tax rate 20%
So tax on lump sum £2,100 not £4,200.
Take 25% of pension tax free = £900
SP lump sum tax saving £2,100
So I would immediately be £120 better off and I would receive an annual annuity.
Is this right or have I missed something?
If I take out an immediate vesting pension I can reduce my income to below HR tax.
If I put off taking my SP till March 2016 I can then take it as a lump sum and have it taxed at a lower marginal rate of 20%.
The figures would look something like this.
Gross income 43,000 for 14/15, 44,000 for 15/16
SP lump sum from July 2014 to March 2016 10,500
Take out immediate vesting pension in 15/16 for £2,880 net £3,600 gross
New gross income 40,400 for 15/16, so marginal tax rate 20%
So tax on lump sum £2,100 not £4,200.
Take 25% of pension tax free = £900
SP lump sum tax saving £2,100
So I would immediately be £120 better off and I would receive an annual annuity.
Is this right or have I missed something?
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