Tax on deferred pensions

ianllandaff

I'm working part time and earning £15k, I have deferred taking my state pension until now age 68. I think that was a mistake in hindsight.
My regular pension has now started at about £6000 a year. I now have the option of taking my deferred sum as a lumpsum £28k or £56 a week.
I wanted and expected to take the lump sum but this is treated as taxable income this year meaning my total income this year would be £49k meaning about £17k will be taxed at 40%, nearly £7000 of extra tax. next year I'll be back to £21k total.
I've never in my life paid more than standard rate, this seems totally unreasonable to add extra tax because ive tried to save.
Is there any way out?

Dazed_and_confused

When taken as a lump sum deferred State Pension has special rules when it comes to taxation.

You need to look at your other taxable pension income in the year and ignore the lump sum. If you are a 20% payer then that is the rate you pay tax on the deferred lump sum element.

When you think about your other income don't forget you have a new element to include, your normal State Pension which will presumably be payable for part of the same tax year you get the lump sum in?

Dazed_and_confused

Your calculation also seems to suggest you are not entitled to a UK personal allowance which is quite unusual.

40% tax normally only applies in the current tax year on income over £43k (or £45k outside of Scotland).

badmemory

Also unless you really need that lump sum or have a shortened life expectancy, then you may be financially much better off taking the extra pension.

maximumgardener

you could defer your SP for a bit longer
rather than taking it in this tax year.?

you could reduce your part time work & earn a bit less?

what is your tax code?

xylophone

See https://www.litrg.org.uk/tax-guides/pensioners-and-tax/what-state-pension-deferral

https://www.litrg.org.uk/tax-guides/pensioners-and-tax/what-tax-do-i-pay-my-state-pension-lump-sum