Lump sum tax implications

Corncrake · 6 February 2018 at 1:22AM

Hello,
I was 65 in 2009 but have not yet claimed a small employment pension (employment from 1978 to 1997)

It seems I have two options (A) full pension plus arrears(subject to tax) , and (B) a Retirement Lump Sum and Reduced Pension plus arrears(subject to tax)
[the arrears are, I think, what I should have been receiving all these years ]

I am unsure about the implications of the bits (subject to tax)

I have just begun to claim my State Pension (starting end of January but not yet in the bank) and I understand my deferred State Pension lump sum (dSPls) , if I opt for it, will be taxed at my current tax rate which is 0% as I have no other income (except for some tiny bank interests of a few pounds)

However both the (a) and (b) arrears are above the personal allowance; so would they be considered income for this year and take me into 20% tax bracket for them and also! for the dSPls eeek! ?

or are they taxable at my present 0% tax rate, just like the dSPls is if I have no other earnings ? (I think that this case is probably not correct ? )

I am thinking that perhaps I should not begin claiming my employment pension until a later year, or perhaps after April this year ?

Thanks for any help.

AlanP_2 · 6 February 2018 at 2:25PM

You will be taxed on all INCOME over your Personal Tax Allowance so trying to manage the tax years when you take income can help mitigate the overall effect.

That means, you have a couple of months left in this tax year to get out what you can up to your limit before it starts again on 6th April.

xylophone · 6 February 2018 at 2:55PM

https://www.gov.uk/hmrc-internal-manuals/self-assessment-manual/sam121160

Contact HMRC.

https://www.gov.uk/government/organisations/hm-revenue-customs/contact/income-tax-enquiries-for-individuals-pensioners-and-employees

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

Corncrake · 6 February 2018 at 3:17PM

AlanP wrote: »

You will be taxed on all INCOME over your Personal Tax Allowance so trying to manage the tax years when you take income can help mitigate the overall effect.

That means, you have a couple of months left in this tax year to get out what you can up to your limit before it starts again on 6th April.

Thanks for your help, yes, I think that I have got the order of claiming wrong, I should have claimed the arrears this year [and they would have been taxable but I would have had no other income to be taxed at the same time] and my State Pension next year

It seems to me at the mo. that I can take my SPlumpsum now at 0% but if I take the Arrears lump next year it will be added to my SPincome and both will be taxed after personal allowance is deducted ??
Booo

not a terrible situation but could have been avoided botheration !

Am I in the right place or am I missing something ?

Corncrake · 6 February 2018 at 3:32PM

Thanks, @xylophone I had seen the third link which is what set me thinking about preserving it's 0% tax lumpsum

I am reading the other two now but oh dear! my head hurts with all the terminology ! I had hoped that someone might be able to put it in human speak !

I dont know SA, never done it

never had to )

I think all because I was told, on the phone so no record, by my employer at my NRD (<see gettiung with some of the lingo!) that I didnt have to ask for deferral, there was no mechanism*, I was told it would just accumulate.
Seems now that there has been a change ie. it needed to have been *deferred at NRD and it can not be backdated to the NRD : so hence the payout in a lump of all the arrears that have not been accumulated into the 'fund' 'pot' or whatever it is called

Corncrake · 6 February 2018 at 4:11PM

PS In case anyone is wondering - I did post several times on the forum in the past, but it seems I have been forgot and now am a new poster !

EDIT Ah, all may not be lost this sounds promising :

Arrears of pension
If a pension provider discovers a long-standing underpayment of pension, the underpayment is calculated and paid in a single sum. The provider is required to operate PAYE on the lump sum, which may give rise to higher rate liability for a pensioner who is usually a basic rate taxpayer. The pensioner should contact the tax office and supply a schedule showing the years to which underpayments are attributable. HMRC will spread the payments back over the relevant years and recalculate liability. Underpayments in the earlier years may be set-off against the resulting over-payment in the year of the lump-sum payment.

From :- oh, because I am thought to be a new poster I can not post the HMRC link !

greenglide · 6 February 2018 at 5:35PM

But surely if the pensioner doesn't claim, for whatever reason, it isn't an underpayment"?

Claiming a refund of tax may be "problematical" but worth a go.

xylophone · 6 February 2018 at 6:24PM

The OP needs to contact HMRC concerning tax on arrears of pension - see link in previous.

Taxable pension is the amount to which the pensioner is entitled in the tax year. A payment of arrears of pension may be a substantial sum covering a number of tax years and the statutory (accruals) basis should thus be applied on request where it is to a taxpayer!!!8217;s advantage.

Further guidance on this point is available at SE74101 (2002/03 and earlier years) and at EIM74101 (2003/04 and later years).

Corncrake · 13 February 2018 at 4:08PM

xylophone wrote: »

The OP needs to contact HMRC concerning tax on arrears of pension - see link in previous.

Yes. I did see your previous as well !
The idea of a forum is to get advice from peeps who might know / have previous experience before contacting the relevant authority !

It may surprise you to know that I had intended to contact HMRC, (I am not completely stupid - quiet in the back row ) ) in due course, they have been most helpful previous times.

xylophone · 13 February 2018 at 4:28PM

It may surprise you to know that I had intended to contact HMRC, (I am not completely stupid - quiet in the back row ) ) in due course, they have been most helpful previous times.

That'll teach me for trying to help!

Lump sum tax implications

Comments

Categories

Get our FREE Weekly email full of deals & guides - and it’s spam-free