Taxation on pension

Ganga · 10 July 2017 at 11:37AM

Can any of the people on this forum answer a question for me?

I have not drawn my state pension yet ( 65 in july 2015 )
Due to some possible health issues i was contemplating taking the lump sum after my 67 th birthday.
Since retiring end of March 2016 i have not earned any income,living of my wifes state pension and her private pension.
Now i believe if not earning i can take the lump sum tax free?
If i do this do they include this figure in my tax year as earnings as i also have a very small private pension ( £7000 approx. ) that i would also like to draw as it is doing nothing,infact has dropped slightly.

Thanks in anticipation Ganga:)

xylophone · 10 July 2017 at 12:50PM

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

molerat · 10 July 2017 at 12:55PM

The lump sum will not affect your tax liability for the year in which it is drawn, it will not be totalled into your income. It will be taxed at the rate due on the total of all your other income. If all your other income is below your tax allowance then no tax will be due. If you are 1p into the 20% band then it will be taxed at 20%. Don't forget that when you take the deferred lump sum you will also start to take the pension so that needs to figure into your calculations. It is probably better to take it at the end of a tax year so there is little state pension to add to your total income for the year.

Ganga · 10 July 2017 at 4:13PM

molerat wrote: »

The lump sum will not affect your tax liability for the year in which it is drawn, it will not be totalled into your income. It will be taxed at the rate due on the total of all your other income. If all your other income is below your tax allowance then no tax will be due. If you are 1p into the 20% band then it will be taxed at 20%. Don't forget that when you take the deferred lump sum you will also start to take the pension so that needs to figure into your calculations. It is probably better to take it at the end of a tax year so there is little state pension to add to your total income for the year.

Thanks for the info,can i not take the lump sum and then if i want,defer taking the pension for another 12 months or longer?

Taxation on pension

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