Tax-free lump sum - taxed

jicms

I received a £16k tax free lump sum along with my very meagre NHS pension last financial year. Completing my tax return shows I have to pay £3.5k tax on it. Presumably this is because of my state pension and income from a rental property. Am I missing the point as surely most people will be taxed on lump sums by the time state pension is factored in?

HappyHarry

jicms wrote: »

I received a £16k tax free lump sum along with my very meagre NHS pension last financial year. Completing my tax return shows I have to pay £3.5k tax on it. Presumably this is because of my state pension and income from a rental property. Am I missing the point as surely most people will be taxed on lump sums by the time state pension is factored in?

The tax free lump sum is tax free regardless of other income. You would only pay tax if you had exceeeded the pension lifetime allowance of £1.25m.

Are you sure you have completed your tax return correctly? I can only think that you may want to double check the wording of the question where you have entered the £16k.

xylophone

I received a £16k tax free lump sum along with my very meagre NHS pension last financial year. Completing my tax return shows I have to pay £3.5k tax on it. Presumably this is because of my state pension and income from a rental property. Am I missing the point as surely most people will be taxed on lump sums by the time state pension is factored in?

I am very puzzled by this.

It would seem extremely unlikely that you have paid tax on your PCLS from the NHS.

Your NHS pension is taxable income as is your state pension and rental income.

Do you mean that the tax code applied to your NHS pension is low because your PA is reduced by SP and rental income?

jicms

Thanks so much for your help. My OH is helping with my tax return and he entered the lump sum in the state pension box in error!! (There is nowhere to enter a private lump sum payment and I wasn't even aware state pension paid lump sums.) I am now due a small refund so am very relieved.

All reading states that private lump sums are tax free but I couldn't find confirmation that this remains tax free when other income is taken into account.

jamesd

Income never makes a difference to whether it's tax free or not, so nothing to worry about there. No need or place to even mention it on a tax return, same way interest from an ISA doesn't need to be mentioned.

jicms

I think these things come from experience which I won't acquire from my one-off lump sum payment.

xylophone

I wasn't even aware state pension paid lump sums.

Under the old state pension deferment rules it was possible to opt for a lump sum when a person claimed the deferred SP.