state pention tax

Kjchilts

Sorry if this is not the right place for this I am new,
my wife is retiring in August 2015,she has an estimated £28000 lump sum which she wishes to take,
When she retires her only income will be the state pension of £155.00 per week.
would she be able to pay the tax due on this sum in the next year. and therefore would she not have to pay any tax as her earning /income will only be £8060 a year well under her allowance.
if not I assume she will have to pay 20%.
hope I have not complicated this to much
kind regards
kjchilts:)

atush

Its the right place, but you posted twice so remove the other one?

Has she gotten a state pension forecast so she knows she is getting 155?

If so, then if she took the entire pension she would get 7K tax free and get 21K taxed (19K approx will be taxed at basic rate).

She could however, choose to not take the 21K as a lump sum, but take pension up to her personal allowance tax free each year going forwards?

kidmugsy

Depending on your circumstances, a good stunt would be to defer starting the state pension. That would leave room under the personal allowance of £10600 p.a. for withdrawal of the private pension across a few tax years, without paying tax on any of it. When she starts the State Pension she'd be rewarded with an extra 10.4% of it for every year it's been deferred. Looks as if she'd get that tax-free too.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/372517/dwp024-102014.pdf

Kjchilts

sorry would delete if I knew how,thanks for your reply

atush

the little button at the bottom of your post with the pen/paper.

It is the edit feature and one option is to delete the entire post.

jem16

atush wrote: »

the little button at the bottom of your post with the pen/paper.

It is the edit feature and one option is to delete the entire post.

As far as I'm aware you can delete a whole post. However you cannot delete your post if it's the start of a thread.

atush

well, whatever. You can ask the mods to do it then? Other forums you can, but only the OP can.

I've deleted posts but never threads

jamesd

Kjchilts wrote: »

my wife is retiring in August 2015,she has an estimated £28000 lump sum which she wishes to take, ... would she be able to pay the tax due on this sum in the next year

The standard 25% pension lump sum is tax free. It's only the remaining 75% or income from it that is taxable.

Kjchilts wrote: »

her earning /income will only be £8060 a year well under her allowance.

There are two other good things she can do in that situation:

1. Make pension contributions to a personal pension. a non-earner can pay in £2880 net and get 25% added to that to deliver basic rate income tax relief, increasing it to £3600. She gets the tax relief even if she's paying no income tax. Then she can take out the 3600 and thank HMRC for being kind and giving her a largely free £720. Repeat each year. The Virgin Stakeholder Pension is a good one to use for this because it has no charges for it.

2. Defer her state pension. If she reaches state pension age from 6 April 2016 it will be increased by 5.8% for each year of deferral, pro-rated for parts of a year. If she reaches state pension age before that the increase is 10.4% a year. She can use this to increase her income and make more use of her personal allowance to get tax free higher income for her/the household.

If increases in your income would be taxable it's likely to make sense to give priority to increasing her taxable income to use her allowance.