A Taxing question

berbatov10

I am considering retirement with a final salary pension. When I put the figures into an online calculator its says that to take a 25% lump sum as a commutation it will breach HMRC rules about taxation and that I will be liable for 40% tax on the amount over that level. My question is if I retired at the start of the tax year would this change the chance of 40% tax

[Deleted User]

I am not sure what rules you are breaching but, in general, it does make sense not to start taking your pension in a tax year when. combined with your other income you would be a 40% tax payer.

xylophone

When I put the figures into an online calculator its says that to take a 25% lump sum as a commutation it will breach HMRC rules about taxation

I don't understand this.

The PCLS is normally tax free - the pension income is added to other taxable income and taxed at the appropriate rate.

berbatov10

Commutation

Age on date of retirement is 55 years 0 months, which gives a factor of 20.50

Therefore 25% of annual pension ( 21,071.50 / 100 * 25 x 20.50 ) gives a lump sum of £107,991.44

Warning!!- The percentage that you have requested to commute makes your commutation lump sum liable to tax (40%) by HRMC.

Commuting 24% or less will bring the commutation lump sum under the HRMC tax threshold which based on commuting 24% (( 15,803.63 * 20 ) + 107,991.44 ) is £106,015.98

(Note: the threshold figure is variable based on the percentage commuted)

agrinnall

If the text in red is a direct copy and past from the calculator then it makes no sense: where does 15,803.63 come from, where does 20 come from, and how can a positive number + 107,991.44 ever equal 106,015.98?

[Deleted User]

agrinnall wrote: »

If the text in red is a direct copy and past from the calculator then it makes no sense: where does 15,803.63 come from, where does 20 come from, and how can a positive number + 107,991.44 ever equal 106,015.98?

On the latter point - I think that it is supposed to read : 24% of the sum of (15803.63 x 20 ) and £107991.44. Even then it does not compute and, like you, I have no idea where the £15803.63 comes form.

Although £15803 is 75% of £21071 ??????

Deneb

Police Pension Scheme 1987?

See http://www.myownpension.co.uk/pages/pol_1987_BOR.htm and Calculation example 1.


Edit: should add that if it is the PPS, the answer to your question is no. It's the amount that you commute which could generate the tax charge, not the date on which you take it.