deferred pension arrears extra payment tax

midnight-turkey

Hi there. I aplied for my deferred state pension last July. It is for 10 years. 

The DWP took so long dealing with it all papers getting stuck in Belfast etc that they did not get my basic award notice to me till the end of March. Then proceeded to put about £11,000 into my account on the 7th april.. after the tax year end! i have now got my offer of either lump sum which i could take -20% or extra pension. yes dilemma how how long one will live.

But of course if I take the extra pension that too would be paid in this tax year.

I am self employed and still working and if they apply tax on when the money is paid to me I would be way up into 40%.

Can anyone who has had experience of similar situation tell me if these arrears pension payments and extra payments should be taxed in the year they were due rather than the current one. 

midnight-turkey

pardon the typos.. sticky keyboard.

Marcon

midnight-turkey said:

Hi there. I aplied for my deferred state pension last July. It is for 10 years. 

The DWP took so long dealing with it all papers getting stuck in Belfast etc that they did not get my basic award notice to me till the end of March. Then proceeded to put about £11,000 into my account on the 7th april.. after the tax year end! i have now got my offer of either lump sum which i could take -20% or extra pension. yes dilemma how how long one will live.

But of course if I take the extra pension that too would be paid in this tax year.

I am self employed and still working and if they apply tax on when the money is paid to me I would be way up into 40%.

Can anyone who has had experience of similar situation tell me if these arrears pension payments and extra payments should be taxed in the year they were due rather than the current one. 

See https://www.litrg.org.uk/pensions/state-pension/tax-state-pension/tax-deferred-state-pension-lump-sums#6 which gives a full explanation - it isn't quite that simple (it never is!).

midnight-turkey

I have read this. I understand the tax implications if I took the lump sum.

It is the fact that if I am taking the extra pension then the payment in arrears come into the tax year afyer that if which they were applicable to because DWP were late inprocessing the claim.

DRS1

So in the notification letter in March did the DWP give you a date for your "first weekly entitlement"?  If that was in the earlier tax year then I think you can say the payment in arrears (the £11k) is taxable in that earlier year - even though you received it later.  Probably needs a conversation with HMRC but there is a principle that the state pension is based on entitlement rather than receipt.

midnight-turkey

Thanks yes.. 
They stated I was entitled from 27th April 2024, so yes.
With my first payment of the entire years worth at the ‘non extra rate’
I have since had conversations with a help line advisor at HMRC who didn’t seem to know.
His first guess was when it was paid! Even though he thought this was rather unfair!

Then of course if I take the extra pension instead of lump sum they will pay me the rest of my arrears in this tax year too.

I can’t be the only one, which is why I’m posting out here.

thanks for your post..

Dazed_and_C0nfused

midnight-turkey said:

Thanks yes.. 
They stated I was entitled from 27th April 2024, so yes.
With my first payment of the entire years worth at the ‘non extra rate’
I have since had conversations with a help line advisor at HMRC who didn’t seem to know.
His first guess was when it was paid! Even though he thought this was rather unfair!

Then of course if I take the extra pension instead of lump sum they will pay me the rest of my arrears in this tax year too.

I can’t be the only one, which is why I’m posting out here.

thanks for your post..

It isn't when it's paid, it's the tax year it relates to that counts 

So you are likely to find 49 weeks is taxable in 2024-25.

DRS1

midnight-turkey said:

Thanks yes.. 
They stated I was entitled from 27th April 2024, so yes.
With my first payment of the entire years worth at the ‘non extra rate’
I have since had conversations with a help line advisor at HMRC who didn’t seem to know.
His first guess was when it was paid! Even though he thought this was rather unfair!

Then of course if I take the extra pension instead of lump sum they will pay me the rest of my arrears in this tax year too.

I can’t be the only one, which is why I’m posting out here.

thanks for your post..

The entitlement not receipt thing is something I only learned from posters on here so not a shock that the HMRC advisor didn't know.  Someone there will know - it is just finding the right person.

Marcon

midnight-turkey said:

Thanks yes.. 
They stated I was entitled from 27th April 2024, so yes.
With my first payment of the entire years worth at the ‘non extra rate’
I have since had conversations with a help line advisor at HMRC who didn’t seem to know.
His first guess was when it was paid! Even though he thought this was rather unfair!

Then of course if I take the extra pension instead of lump sum they will pay me the rest of my arrears in this tax year too.

I can’t be the only one, which is why I’m posting out here.

thanks for your post..

Have a look at the first page or so in this thread: https://forums.moneysavingexpert.com/discussion/6610482/civil-service-pension-tax/p1

You can ask to be taxed on the 'statutory basis', which means using the year of entitlement, not receipt.

Dazed_and_C0nfused

Marcon said:

midnight-turkey said:

Thanks yes.. 
They stated I was entitled from 27th April 2024, so yes.
With my first payment of the entire years worth at the ‘non extra rate’
I have since had conversations with a help line advisor at HMRC who didn’t seem to know.
His first guess was when it was paid! Even though he thought this was rather unfair!

Then of course if I take the extra pension instead of lump sum they will pay me the rest of my arrears in this tax year too.

I can’t be the only one, which is why I’m posting out here.

thanks for your post..

Have a look at the first page or so in this thread: https://forums.moneysavingexpert.com/discussion/6610482/civil-service-pension-tax/p1

You can ask to be taxed on the 'statutory basis', which means using the year of entitlement, not receipt.

Although HMRC do that automatically with the State Pension as DWP only tell them about the dates you become entitled to it and the weekly amount.

You wouldn't ask HMRC about that as then everyone involved gets incredibly confused and there was nothing wrong in the first place!

Dazed_and_C0nfused

midnight-turkey said:

I have read this. I understand the tax implications if I took the lump sum.

It is the fact that if I am taking the extra pension then the payment in arrears come into the tax year afyer that if which they were applicable to because DWP were late inprocessing the claim.

Have you read this?  It can be more complicated than it first seems.

See the example of Graeme.

https://www.litrg.org.uk/pensions/state-pension/tax-state-pension/tax-deferred-state-pension-lump-sums#2