What to do with Deferred State Pension Lump Sum
Comments
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I think people have become confused by assuming that there is something complicated in my question. There isn't, it really is as simple as I originally stated. As I said in my original post "the key question is whether the tax deducted 'at source' from my lump sum counts towards my annual tax bill."
I am quite clear that the lump sum will be paid with tax deducted. What I am not clear about is whether that deduction counts as 'tax' for the purposes of my HMRC Self Assessment return. (See my post of 0949 this morning).
It may be that everyone has assumed that can't be my question because the answer is so obvious, and have looked behind it to seek out my "true meaning"! But I regret that experience tells me never to assume that obvious common sense interpretations apply when dealing with HMRC.
I thought that I had explained it! Anyway:
After including ALL of your income, including your lump sum - what is your tax liability? - NOT what you OWE after deducting tax already paid. This answer and only this answer is the maximum tax that can be relievable against your VCT.
For example - you may have PAYE income of £12000 with £1000 tax deducted. Assuming a personal allowance of £11850, your tax LIABILITY is £30 (£150 at 20%) The maximum tax claimable against VCT is £30. NOT £1000 as £970 will be refunded as overpaid.
Whether you have overpaid or underpaid on your lump sum with reference to your final tax liability is an entirely different matter.You must include all tax paid including that paid on your lump sum on your self-assessment.0 -
"the key question is whether the tax deducted 'at source' from my lump sum counts towards my annual tax bill."
If it doesn't count towards the bill that would mean DWP deduct 40% which isn't "tax" and then HMRC would want an additional 40% off the op to meet his tax liability.
Leaving the op with 20% of the lump sum :eek:0 -
Apologies if I have used jargon unwittingly. If you tell DWP that your marginal rate is 40% they will deduct 40% and, provided you are correct that 40% will count as tax paid (and charged) for the year. However if it later turns out that you are wrong HMRC will adjust after the end of the year to the correct figure. If it turns out that your marginal rate is 20% then HMRC will keep 20% and repay you 20%. You would then only be able to use the net 20% against your VCT relief claim.
If your marginal rate turns out to be 45% HMRC will charge you the additional 5% and you will be able to use the full 45% against your VCT relief claim. All this will be done by way of an assessment.
Does that make sense?0 -
Yes, perfect sense. I expect to receive 60% of the notified Lump Sum, because I'm as sure as can be that my marginal rate will be 40%, no higher and no lower, as I have already told DWP.
In the unlikely event it turns out to be 20% (45% is unreachable for me in practice, I should be so lucky!) then I would expect adjustments in due course, as you describe. That would be an embarrassment if I had already invested the whole 60% in VCTs, but there are 2 reasons why I am not too concerned on that score. One is that there is almost no chance, so far as I can see, of dropping to a 20% marginal rate in this FY. The other is that, having looked closely at my other finances, I believe I have just about enough tax liability in any case to swallow up the VCT relief, even if (as my most pessimistic interpretation suggests) the 40% deduction doesn't count towards my 'tax paid' figure for the FY.0 -
My wife took her state pension lump sum in tax year 2015/16 and included the lump sum in her tax year 2015/16 self assessment. The tax due on the lump sum was part of the calculation of her tax year 2015/16 liability, collected in payments due 31 Jan 2017.0
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My wife took her state pension lump sum in tax year 2015/16 and included the lump sum in her tax year 2015/16 self assessment. The tax due on the lump sum was part of the calculation of her tax year 2015/16 liability, collected in payments due 31 Jan 2017.
Well, many thanks to Polymaff. That is exactly what I have been trying to establish - you have cleared up what (perhaps) shouldn't have been a query in the first place if I weren't so pessimistic about all things taxical!0 -
Well, I thought that someone should respond to your query
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