Tax on deferred pension lump sum?

mpeill

I'm a UK taxpayer, aged 74, and have been deferring my state pension as I still work part time.
I am now considering taking the accrued lump sum together with the standard weekly pension, rather than an increased weekly pension. The lump sum will be in the order of £100,000K.
I currently pay tax at the standard rate of 20%.
When I take the lump sum, will my total income be taxed at the higher rate, 40% or 45%, or will the lump sum tax be based on my existing rate of 20%?

Brie

Your income will be the SP £100k plus any other income you are receiving from your p/t job.  So you'll definitely be in a high tax bracket.  

so 

Band	Taxable income	Tax rate
Personal Allowance	Up to £12,570	0%
Basic rate	£12,571 to £50,270	20%
Higher rate	£50,271 to £125,140	40%
Additional rate	over £125,140	45%

Have you been in receipt of any income based benefits?  These will likely be effected by the lump sum payment which may mean you need to repay the benefits so consider this carefully.

Marcon

Brie said:

Your income will be the SP £100k plus any other income you are receiving from your p/t job.  So you'll definitely be in a high tax bracket.  

No. The lump sum would be taxed at 20%. See https://www.litrg.org.uk/pensions/state-pension/tax-state-pension/tax-deferred-state-pension-lump-sums to understand why.

molerat

Assuming you are female and reached SP age pre 2016 (otherwise there would  not be a lump sum) then lump sum will be taxed at your normal rate for the year so if your current total income, excluding the lump sum, keeps you in the 20% band then that is what it will be taxed at.

Dazed_and_C0nfused

mpeill said:

I'm a UK taxpayer, aged 74, and have been deferring my state pension as I still work part time.
I am now considering taking the accrued lump sum together with the standard weekly pension, rather than an increased weekly pension. The lump sum will be in the order of £100,000K.
I currently pay tax at the standard rate of 20%.
When I take the lump sum, will my total income be taxed at the higher rate, 40% or 45%, or will the lump sum tax be based on my existing rate of 20%?

You ignore the lump sum when determining your tax band.

But you must include all other taxable income, even if taxed at 0%.  Don't forget to include the ~6 months of weekly State Pension pension you will be entitled to when thinking about your total income.

If you remain in the basic rate band then the whole £100k will be liable to basic rate tax.  If you are Scottish resident then the intermediate rate may be a factor.

mpeill

 Marcon said:

Brie said:

Your income will be the SP £100k plus any other income you are receiving from your p/t job.  So you'll definitely be in a high tax bracket.  

No. The lump sum would be taxed at 20%. See https://www.litrg.org.uk/pensions/state-pension/tax-state-pension/tax-deferred-state-pension-lump-sums to understand why.

Many thanks, all, for the advice above. I'm a male, reaching SP age on 2nd March 2016. Thanks especially to Marcon for the link to the web page document, that explains it all. Looks like good news being taxed at 20% on the lump sum (well maybe not good news, but could have been a lot worse :-)