Pension lump sum - UC automatically zero in January?

desperate_times

Ok so I know about the capital rules for UC for £6k-16k but what about immediate automatic effect in the month that the lump sum is received?   

I will get small lump sum of £8k pre-tax on Dec 30th.  My UC is around £700-1000 usually varying month to month and next payable on Jan 7th and calculated based on income up until Dec 31st.  I will pay small amount of tax on the £8k so will it show on my PAYE and automatically be considered income and be used to calculate UC entitlement for January?  If it is obviously UC will go to zero in January?   (albeit back to normal less a little for capital income reduction in Feb)

calcotti

A pension lump sum is capital, not income. 

desperate_times

calcotti said:

A pension lump sum is capital, not income. 

Yes in theory but just checking my online HMRC account this morning and I have pension payment of £6000 pending for Dec 31 under PAYE income section.  Won't UC automatically reduce?  I will ask directly I think but would be good to know if anybody has direct experience. 

NedS

desperate_times said:

calcotti said:

A pension lump sum is capital, not income. 

Yes in theory but just checking my online HMRC account this morning and I have pension payment of £6000 pending for Dec 31 under PAYE income section.  Won't UC automatically reduce?  I will ask directly I think but would be good to know if anybody has direct experience. 

No, it will not automatically reduce as, although it will show on the HMRC RTI, it is not earned income so will not automatically be passed to UC. You (or anyone claiming UC) must declare any pension income manually.

As @calcotti says, pension lump sums are treated as capital, not income. You must declare the the capital if your capital now exceeds £6000

Where income tax has been deducted, if it is subsequently refunded then that may be classed as income (again you will need to declare any tax rebate at the time you receive it) if you were in employment in the current tax year. If you were not in employment then it's classed as capital.

desperate_times

NedS said:

desperate_times said:

calcotti said:

A pension lump sum is capital, not income. 

Yes in theory but just checking my online HMRC account this morning and I have pension payment of £6000 pending for Dec 31 under PAYE income section.  Won't UC automatically reduce?  I will ask directly I think but would be good to know if anybody has direct experience. 

No, it will not automatically reduce as, although it will show on the HMRC RTI, it is not earned income so will not automatically be passed to UC. You (or anyone claiming UC) must declare any pension income manually.

As @calcotti says, pension lump sums are treated as capital, not income. You must declare the the capital if your capital now exceeds £6000

Where income tax has been deducted, if it is subsequently refunded then that may be classed as income (again you will need to declare any tax rebate at the time you receive it) if you were in employment in the current tax year. If you were not in employment then it's classed as capital.

Thank you. Relieved to hear that not automatically passed to UC as not earned income. Now I see it sitting on HMRC income section as pending I am not totally convinced but hope you are right  

NedS

desperate_times said:

NedS said:

desperate_times said:

calcotti said:

A pension lump sum is capital, not income. 

Yes in theory but just checking my online HMRC account this morning and I have pension payment of £6000 pending for Dec 31 under PAYE income section.  Won't UC automatically reduce?  I will ask directly I think but would be good to know if anybody has direct experience. 

No, it will not automatically reduce as, although it will show on the HMRC RTI, it is not earned income so will not automatically be passed to UC. You (or anyone claiming UC) must declare any pension income manually.

As @calcotti says, pension lump sums are treated as capital, not income. You must declare the the capital if your capital now exceeds £6000

Where income tax has been deducted, if it is subsequently refunded then that may be classed as income (again you will need to declare any tax rebate at the time you receive it) if you were in employment in the current tax year. If you were not in employment then it's classed as capital.

Thank you. Relieved to hear that not automatically passed to UC as not earned income. Now I see it sitting on HMRC income section as pending I am not totally convinced but hope you are right  

It's because it is classed as unearned income (because it is from a pension source, and not from employment), not earned income.

Only earned income from employment is passed automatically from HMRC on the RTI feed. All other income sources must be declared and are set up manually on the system

calcotti

NedS said:

It's because it is classed as unearned income (because it is from a pension source, and not from employment), not earned income.

Or capital in the case of a lump sum.

desperate_times

calcotti said:

NedS said:

It's because it is classed as unearned income (because it is from a pension source, and not from employment), not earned income.

Or capital in the case of a lump sum.

Well it may be classed as capital for UC purposes but it is income on my HMRC page despite being a pension lump sum - I can see the word income four times. I hope NedS is right though and not passed along to UC as it is unearned income. 

NedS

desperate_times said:

calcotti said:

NedS said:

It's because it is classed as unearned income (because it is from a pension source, and not from employment), not earned income.

Or capital in the case of a lump sum.

Well it may be classed as capital for UC purposes but it is income on my HMRC page despite being a pension lump sum - I can see the word income four times. I hope NedS is right though and not passed along to UC as it is unearned income. 

Please do come back in January and let us know

calcotti

desperate_times said:

Well it may be classed as capital for UC purposes but it is income on my HMRC page despite being a pension lump sum - I can see the word income four times. I hope NedS is right though and not passed along to UC as it is unearned income. 

It is income for tax purposes. Out of interest, is some of this lump sum tax free?
As Ned says, would be interested to hear what happens in January.

desperate_times

NedS said:

desperate_times said:

calcotti said:

NedS said:

It's because it is classed as unearned income (because it is from a pension source, and not from employment), not earned income.

Or capital in the case of a lump sum.

Well it may be classed as capital for UC purposes but it is income on my HMRC page despite being a pension lump sum - I can see the word income four times. I hope NedS is right though and not passed along to UC as it is unearned income. 

Please do come back in January and let us know

Please to report all good and nothing deducted from UC.  I contacted them before Christmas and they said it would be deducted and no UC for December. When I queried if this was right they were not sure and said to come back to them in January if UC zero and they would request an investigation.Basically support staff clueless.