Your browser isn't supported
It looks like you're using an old web browser. To get the most out of the site and to ensure guides display correctly, we suggest upgrading your browser now. Download the latest:

Welcome to the MSE Forums

We're home to a fantastic community of MoneySavers but anyone can post. Please exercise caution & report spam, illegal, offensive or libellous posts/messages: click "report" or email forumteam@.

Search
  • FIRST POST
    • Missmental2020
    • By Missmental2020 13th Jan 20, 5:48 PM
    • 3Posts
    • 2Thanks
    Missmental2020
    Tax on lump sum
    • #1
    • 13th Jan 20, 5:48 PM
    Tax on lump sum 13th Jan 20 at 5:48 PM
    Hi, I am in the fortunate position to be completing my nhs pension form & im a bit confused . I wanted to take the largest lump sum , just over £100 k. Itís asking if I want to take the largest lump sum, may be eligible to pay tax or the largest amount tax free . I was always under the impression that my lump sum would be tax free and would pay tax on the monthly pension .
    Please can anyone advise?
    Many thanks.
Page 1
    • Dazed and confused
    • By Dazed and confused 13th Jan 20, 5:54 PM
    • 6,212 Posts
    • 3,328 Thanks
    Dazed and confused
    • #2
    • 13th Jan 20, 5:54 PM
    • #2
    • 13th Jan 20, 5:54 PM
    What exactly does it say?
    • Missmental2020
    • By Missmental2020 13th Jan 20, 6:15 PM
    • 3 Posts
    • 2 Thanks
    Missmental2020
    • #3
    • 13th Jan 20, 6:15 PM
    • #3
    • 13th Jan 20, 6:15 PM
    It says:
    Do you want an additional lump sum by giving up part of you pension ?

    If yes do you want,
    A) the maximum additional lump sum , which may incur a tax charge.
    B) the maximum amount tax free or
    C) an additional amount less than the maximum amount permitted .
    • Dazed and confused
    • By Dazed and confused 13th Jan 20, 6:27 PM
    • 6,212 Posts
    • 3,328 Thanks
    Dazed and confused
    • #4
    • 13th Jan 20, 6:27 PM
    • #4
    • 13th Jan 20, 6:27 PM
    That looks very much like there would be a tax charge because you would be exceeding the maximum tax free lump sum allowable.

    Do you actually want to take more than the standard amount?

    And if so do you want it take more than the maximum tax free amount?

    Have you considered the commutation factors?
    • crv1963
    • By crv1963 13th Jan 20, 6:32 PM
    • 1,099 Posts
    • 2,433 Thanks
    crv1963
    • #5
    • 13th Jan 20, 6:32 PM
    • #5
    • 13th Jan 20, 6:32 PM
    It says:
    Do you want an additional lump sum by giving up part of you pension ?

    If yes do you want,
    A) the maximum additional lump sum , which may incur a tax charge.
    B) the maximum amount tax free or
    C) an additional amount less than the maximum amount permitted .
    Originally posted by Missmental2020
    I'm going for (B), but that is because we have a mortgage to clear and have other pension plans.

    Do you have a purpose for the maximum tax free amount or are taking it because you can? If you are in reasonable health and expect to remain so then the larger pension may be better for you.

    You are exchanging £1 of annual pension for £12 of lump sum- quite a poor rate if you haven't a need for the larger sum. If you expect to live for more than a further twelve years then in simple terms you get "more money" by taking the lower lump sum and higher pension income.
    CRV1963- Light bulb moment Sept 15- Planning the great escape- aka retirement!
    • Missmental2020
    • By Missmental2020 13th Jan 20, 9:01 PM
    • 3 Posts
    • 2 Thanks
    Missmental2020
    • #6
    • 13th Jan 20, 9:01 PM
    • #6
    • 13th Jan 20, 9:01 PM
    Thanks for your replies . I am unsure what to do. I was always under the impression that the lump sum was tax free and we pay tax on the pension . I was wanting to buy a property abroad hopefully with the plan to move in the future .
    I will ask the pensions department tomorrow.
    • Dazed and confused
    • By Dazed and confused 13th Jan 20, 10:03 PM
    • 6,212 Posts
    • 3,328 Thanks
    Dazed and confused
    • #7
    • 13th Jan 20, 10:03 PM
    • #7
    • 13th Jan 20, 10:03 PM
    This might help.

    https://www.pensionsadvisoryservice.org.uk/about-pensions/saving-into-a-pension/pensions-and-tax/tax-and-the-cash-lump-sum

    As crv1963 says you should think carefully about taking a larger lump sum as this will permanently reduce your pension.
    • crv1963
    • By crv1963 14th Jan 20, 9:16 AM
    • 1,099 Posts
    • 2,433 Thanks
    crv1963
    • #8
    • 14th Jan 20, 9:16 AM
    • #8
    • 14th Jan 20, 9:16 AM
    Thanks for your replies . I am unsure what to do. I was always under the impression that the lump sum was tax free and we pay tax on the pension . I was wanting to buy a property abroad hopefully with the plan to move in the future .
    I will ask the pensions department tomorrow.
    Originally posted by Missmental2020
    Have you requested a pensions forecast? They give you reasonably accurate figures, do you have a partner/ spouse? If so what pension provision do they have?
    CRV1963- Light bulb moment Sept 15- Planning the great escape- aka retirement!
    • jimi_man
    • By jimi_man 15th Jan 20, 10:14 AM
    • 265 Posts
    • 350 Thanks
    jimi_man
    • #9
    • 15th Jan 20, 10:14 AM
    • #9
    • 15th Jan 20, 10:14 AM
    Hi, I am in the fortunate position to be completing my nhs pension form & im a bit confused . I wanted to take the largest lump sum , just over £100 k. Itís asking if I want to take the largest lump sum, may be eligible to pay tax or the largest amount tax free . I was always under the impression that my lump sum would be tax free and would pay tax on the monthly pension .
    Please can anyone advise?
    Many thanks.
    Originally posted by Missmental2020
    Hi. With public sector Defined Benefit pensions (the NHS scheme is such a pension) there can be a tax charge on the lump sum if the total exceeds 25% of the value of the pension. Technically there is no actual value of the pension since it pays out a set amount every year ad infinitum until death, however it's usually done by multiplying the yearly pension by 20 and adding the lump sum.

    The working out of 25% is a little opaque, but a ballpark figure can be obtained by dividing your pension 'value' by 4 and as long as your lump sum is nowhere near that, then it's fine. If it is then you may have to work it out more accurately to ensure you are not going over it. Or get your pensions dept to do it.

    As an example, if your yearly pension without lump sum is £30K, then the value is £30,000 x 20 = £600k, so as long as your lump sum is lower than £600k / 4 = £150K then you should be fine.
Welcome to our new Forum!

Our aim is to save you money quickly and easily. We hope you like it!

Forum Team Contact us

Live Stats

3,131Posts Today

6,269Users online

Martin's Twitter