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TonyTax
TonyTax, Tax Consultant
Category: Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I have in the last week taken my state pension as a lump sum

Resolved Question:

I have in the last week taken my state pension as a lump sum + weekly payments, due to my tax position can I repay it + payments that have been made and withdraw it after this tax year
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.
Hi.

I answered your other question on the state penion lump sum. Why do you think you will pay no tax if you repay it and claim it in 2015/16?
Customer: replied 2 years ago.

because I am due to receive monies from a property that was sold in this tax year I cannot avoid tax in this year. on receipt of my lump sum state pension I believe up to 6 weeks I can alter this to an enhanced pension, my question is can I repay the lump sum + payments received and reclaim as a lump sum + payments in the new tax year, as I believe my pension after tax is added to everything making my tax liability higher in this year. I aviously expect to pay tax but I will no longer be employed after april so my earnings will be from private and state pensions

Expert:  TonyTax replied 2 years ago.

Thanks.

The capital gain from the sale of the property will not be taken into account in calculating the rate of income tax that will be applied to your state pension lump sum. Delaying the cheque encashment will not change the tax year in which the gain is taxed. The date that contracts are exchanged is the tax point for CGT purposes.

If your income in 2015/16 will consist of pensions and they will exceed your personal allowance in that year, then your tax rate will be at least 20%. You only need to have £1 of income taxable at 20% to make your lump sum fully liable to 20% tax. If you had £1 of income taxable at 40%, you would pay income tax on the lump sum at 40%. If your pensions and other income but not capital gains are less than your personal allowance, then your tax rate will be 0% and you will pay no tax on your lump sum.

If you look on page 28 here, you will see that you can if you wish tell the DWP to pay your lump sum in the tax year following that in which you actually started to draw your weekly state pension.

If you change your mind within three months of making your intial choice as to how you receive the extra pension, ie as a lump sum or as extra weekly pension, you can do that. You would then repay any lump sum or extra weekly pension you have had so that the DWP can pay the correct sums based on your new choice. Whether that means you can defer it to the next tax year, what with you already having claimed it I'm not 100% certain but, as you will have read in the previous paragraph, you can ask for the lump sum to be paid in the next tax year even if you have started to received the weekly payments so there would appear to be some reason for confidence that you can. However, you would need to contact the DWP for a definitive answer. See page 53 here.

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

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