Quick help please with a pension...

leono1 · 23 April 2018 at 12:06AM

My mum deferred her pension 3 years ago and this week is to receive a lump sum. Keeping the numbers simple bar a few pounds and pence she is to receive 25000 - 5000 tax = 20000. But last year she only earnt 6000 from her part time job so she is wondering why she isnt getting taxed on 20000 = 4000, because 5000 of the 25000 shouldnt be taxable as its part of her tax allowance for last year (6000+5000 =11000 personal tax allowance) ??
Or will she get a tax refund for the tax she has paid on the lump sum once theyve worked out the final numbers for tax year 17/18

Also she chose to have the pension taxed from 17/18 when given the option. If she'd have ticked to be taxed on it 18/19 and then quit work tomorrow would she have only been taxed on 13500 of the pension (25000-11500)?

Or no matter what are you always taxed 20% of the lump sum?
Is there no way of not getting taxed on the 25000?

Paul_Herring · 23 April 2018 at 12:54AM

Looks like a tax rebate is probably due.

Also she chose to have the pension taxed from 17/18 when given the option.

Looks like that possibly might not have happened - you need to confirm with the provider (or is this the state pension?) which tax year it was deemed paid in.

If 17/18, then she's been overtaxed on 20% of £5,000 of it as you mentioned, thus a rebate of £1,000 is due.

If she'd have ticked to be taxed on it 18/19 and then quit work tomorrow would she have only been taxed on 13500 of the pension (25000-11500)?

If she has no other taxable income this tax year, then yes. (£2,300 due.)

Or no matter what are you always taxed 20% of the lump sum?

In the absence of any other data (usually from HMRC via a tax code,) tax will be deducted at the basic rate (and higher if the amount breaches that limit.)

It just needs to be reclaimed if it's too much.

Is there no way of not getting taxed on the 25000?

Since it's already happened, no - overpaid tax will have to be reclaimed.

https://www.gov.uk/claim-tax-refund/you-get-a-pension might be useful.

Dazed_and_confused · 23 April 2018 at 1:26AM

Is this in respect of the State Pension?

If so then normal tax rules don't apply so any spare Personal Allowance isn't relevant.

And neither is the income from her part time job. It would be her total taxable income which would have to be considered, not just one particular source of income.

Op needs to provide more detail about what this pension actually is.

leono1 · 23 April 2018 at 10:12AM

Sorry yes this is a state pension that she deffered for 3 years and then chose to have a lump sum (rather than an extra 50 a week).

But like i said we feel like the tax of 5000 is to much as she only earnt 6000 from her job last year 17/18

Also only going of what she has told me she said she had a letter with an option to tick which year to be taxed on the lump sum. So if she'd have ticked 18/19 and quit work this month would she have had the full 11500 tax allowance on the 25000 lump sum?
Or do you always get taxed on the lump sum the same regardless of what you earn/dont earn from a job??

kidmugsy · 23 April 2018 at 10:19AM

leono1 wrote: »

My mum deferred her [state] pension 3 years ago and this week is to receive a lump sum. Keeping the numbers simple bar a few pounds and pence she is to receive 25000 - 5000 tax = 20000. But last year she only earnt 6000 from her part time job ... will she get a tax refund for the tax she has paid on the lump sum once theyve worked out the final numbers for tax year 17/18?

My memory is that hmrc look at her marginal tax rate on all her other income, and charge that same rate on the lump sum. So if her 17/18 income (earnings plus anything else relevant) pays 0% income tax then so will the whole of her lump sum. It sounds to me as if she's due a complete rebate of that £5k.

leono1 · 23 April 2018 at 10:47AM

The rebate of 5000 would be great, but we were just thinking of a rebate of about 1000 as like said before we assumed 6000 earnt from work + 5000 of lump sum = 11000 so then taxed on 20000 of lump sum left = abt 4000 tax rather than 5000. So it seems they have worked the 5000 out before taking into consideration what she earnt last year? So she should get a rebate.

AND then if she'd of ticked box 18/19 instead of 17/18 and stopped working she would get taxed on it less because 11500 of the 25000 would be her personal allowance for 18/19??

Dazed_and_confused · 23 April 2018 at 6:38PM

You are slightly overcomplicating matters.

Deferred State Pension lump sum has its own set of rules for calculating the tax due.

You cannot set any spare Personal Allowance against the lump sum, as kidmugsy states it is taxed at the "margins" rate applicable to your mum's other taxable income in the year.

So it is highly likely that the tax due on a £25,000 lump sum will be either £0 or £5,000.

Is the £6,000 her only taxable income in 2017:18 or did she receive any other income such as savings interest, dividends or even normal weekly/4 weekly State Pension payments?

If no other income at all then based on what you've posted the tax due will be £0 and HMRC should refund the excess tax deducted by DWP once they review that particular tax year. According to gov.uk that is normally by November following the end of the tax year

Dazed_and_confused · 23 April 2018 at 6:40PM

So it seems they have worked the 5000 out before taking into consideration what she earnt last year? So she should get a rebate.

I don't think DWP work anything out, they simply react to whichever tax declaration your mother would have signed so they can, outside of Scotland, deduct no tax, 20% or 40% (possibly 45% but not sure about that).

xylophone · 23 April 2018 at 7:15PM

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

See above under What will I get when I claim my deferred state pension?
If you reached state pension age before 6 April 2016

and https://www.litrg.org.uk/tax-guides/pensioners-and-tax/what-tax-do-i-pay-my-state-pension-lump-sum

leono1 · 23 April 2018 at 9:03PM

thanks for them links , i read through them before coming here.

so if my mum only earnt 6000 last year 17\18 and paid no tax and this year shes going pay no tax (18\19, because she'll finish work and only get 150 a week pension) then why are they taxing her 20% on the 25000 because shes not been a tax payer for the last 3\4 years ? as in the example below from one of the links posted above"

"In 2018/19, however, his only income will be his state pension of £170 a week (£8,840 for the year). His 2018/19 income is therefore well below his personal allowance of £11,850, meaning he is a non-taxpayer. Matthew pays no tax on the lump sum, as he is a non-taxpayer in 2018/19."

Dazed_and_confused · 23 April 2018 at 9:24PM

They are taxing her based on her own self declaration.

This link explains what happens

https://www.which.co.uk/money/pensions-and-retirement/state-pension/deferring-your-state-pension-ahr9w8p0f87w

Quick help please with a pension...

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