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TonyTax
TonyTax, Tax Consultant
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Hi - I can retire at the age of 61 yr and 9mnth which is on

Resolved Question:

Hi - I can retire at the age of 61 yr and 9mnth which is on the 09.09.2013 and get my state pension. I have worked for the NHS for 28yr WTE. The NHS is offering MARS at the moment (Mutually Agreed Resignation Scheme) with a pay out of approx £15,000 (one years salary).
My question is if I choose to accept MARS and take my State and NHS pension ie 15,000 + 6370,52 + approx 5,000 pa and lump sum of approx 30,000 what percentage tax will I pay? Someone has told me that the MARS payment may mean that I will pay 40% tax instead of 20%.
Submitted: 3 years ago.
Category: Tax
Expert:  TonyTax replied 3 years ago.

Hi.

Can you confirm what the nature of the £30,000 lump sum is please. Is it a commutation of pension or a severance/compensation payment? How much will you earn in the current tax year by 9 September, £7,500 (half a year's salary?)

Customer: replied 3 years ago.

I neglected to mention that the MARS payment of approx £15.000


under current legislation is allowed to be paid without the deduction of tax and national insurance.


The lump sum of approx £30,000 is part of my NHS pension package together with an annual sum of approx £5,000 pension. (This is based loosely on predicted figures I have previously received before the MARS came out)


My State pension will be approx £6,370.


I will have have been paid approx £7,500 half a years salary by the end of September. Hope this makes it clearer.

Expert:  TonyTax replied 3 years ago.

Thanks.

The MARS payment of £15,000 will be tax free as you say. The £30,000 pension commutation payment will also be tax free under current tax legislation. I'm assuming that your NHS pension of £5,000 per annum will be less than it otherwise would have been had you chosen not to commute some of it for the lump sum of £30,000.

Your taxable income for 2013/14,the current tax year will be about £13,185 (£7,500 6 months salary + £3,185 state pension (6 months assuming it hasn't started yet) + £2,500 6 months NHS pension). You are nowhere near having to pay 40% tax. After you deduct the personal allowance of £9,440, you will have net taxable income for 2013/14 of £3,745. Even if the MARS payment was taxable, you would not pay 40% tax as you need an income in excess of £41,450 pre-personal allowance to have to pay tax at that rate.

I hope this helps but let me know if you have any further questions.

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Customer: replied 3 years ago.

Many thanks, XXXXX XXXXX will help me to make a more informed decision if I am accepted for the MARS scheme. It is a weight off my mind. I am very pleased with the help you have given me.

Expert:  TonyTax replied 3 years ago.
Thanks and good luck.

Please don't forget to rate my answer so that I get paid.

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