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TonyTax
TonyTax, Tax Consultant
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sirs I am a year old man who until February of this year

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sirs I am a 69 year old man who until February of this year hadn't taken my state pension I then choose to take a lump sum of 41579.96 on which I paid 20% tax leaving me with a cash sum of 33264.16, during the tax year 2014 / 15 my earning were as follows £20,000 private pensions £6000 from a partnership and 2 state pension pay ments for feb march total £1400 so I was correct I n informing the dwp that I was in the 20% tax bracket, my problem is that my accountant on giving me a tax projection has added all my earnings + the amount I received after paying tax totalling £60,664 are liable for tax, my question is am I liable for further taxation on my taxed lump sum, or is the 20% tax I paid a I off
this is obviously very important to me as I don't want to be double taxed for if this is the case I have the option to repay the lump sum and go for an enhanced pension. I have spoken to hmrc and I believe the tax paid is a 1 off, however I need proffesional qualification.
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I'm Keith and happy to help you with your question.
Benjamin Franklin once sagely observed that in life there are but two certainties, death and taxes. Unfortunately you have been well and truly caught by his dictum.
Here is the Government advice (nidirect.gov.uk) on the subject of deferring your State pension:
'Your lump sum is taxed at the highest tax rate that applies to your other income. This will help make sure that the lump sum payment will not push you into a higher tax bracket.
For example, your lump sum will be taxed at 20 per cent, if the highest rate for your other income is 20 per cent tax. This is instead of being counted with your other income which might take you into the 40 per cent tax band.
If you choose a lump sum, you will be asked to complete a simple statement. This will make sure that tax can be deducted from your payment before it is paid to you. The tax office check the amount at the end of the tax year. They repay any amount due to you if you have paid too much tax. Or ask you to make up the difference if you have paid too little.
You can choose to take the lump sum when you claim your State Pension or in the following tax year. This is likely to help if your income falls after you have claimed State Pension, for example because you no longer work.
The tax effects will depend on your particular circumstances.'
Your accountant is perfectly correct in aggregating all your income together including the State Pension lump sum to estimate your taxable position which appears to have brought you into the higher tax 940%) bracket. With respect, you should have split the lump sum into more than one tax year as advised in the extract I have quoted. You are not actually being double taxed, although if feels like that. What you are actually doing is paying higher rates of tax determined by your high income. I am surprised that your account did not advise you as to the consequences of taking such a large lump some.
I do not think that the Pensions Service will wear a repayment as you have been required to sign a statement regarding the tax position on requesting the lump sum. You could always try, however; they can only refuse.
This occurrence is, indeed a one off. Your State Pension, although taxable, will be paid gross and the tax due recovered through the tax code used to levy tax on your private pension.
I am so sorry to have to rain on your parade.
Expert:  TonyTax replied 2 years ago.

My answer is different. Your accountant is wrong. Take a look under the heading "Tax on your lump-sum payment" on page 26 of the document here.

It clearly and categorically states that the tax rate that is applied to your lump sum is determined by working out the top tax rate that is paid on your other income in the same tax year, ie the state pension lump sum is excluded.

You were correct to tell the tax office that your top tax rate is 20%. There will be no more tax to pay on the state pension lump sum other than what was deducted at source.

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

Expert:  bigduckontax replied 2 years ago.
Mistakes do occur from time to time both in the pensions Service and at HMRC. If your lump sum has not pushed you into higher tax brackets then the tax deducted at 20% from your lump sum will satisfy your liabilities. If, however, an error has crept in than you wold still be liable for any excess should your aggregated income for the year in which the lump sum payment was made.
The 20% tax band ends at GBP 31865 and, of course, you are entitled to your Personal Allowance of GBP 10600 so you can effectively earn GBP 42465 before hitting the 40% tax band.
Your accountant is perfectly correct to aggregate the lump sum into his projections of your possible liabilities.
Customer: replied 2 years ago.

sirs, I have received a reply at time 6.18 / 6.43 / 7.o5, I am still unclear I have the option under dwp guidelines to repay these monies within 3 months of my drawdown, I am still within that period. am I correct the lump sum I have received after tax will be added to my other earnings for the year even though I have already had paid 20% tax at source . am I write to assume that with the figures I have. given inclusive of my earnings and the lump some I've received that I will pay a portion of £20000 at 40% tax if this is the case I would be better off to repay the lump sum and to accept an enhanced pension that woud still keep me in the 20% tax bracket

Expert:  bigduckontax replied 2 years ago.

I am so pleased that you can repay part of your lump sum within that time frame and thus reduce you possible liability. The fact that the payment has been taxed at source merely means that when it is added to your income for the relevant year you will already have paid tax on it. It is rather like receiving interest from a building society with tax already deducted. The effect is exactly the same.

I would suggest that it might be advantageous to return the lump sum and accept the enhanced pension in lieu. The Pension Service love that if you do and drop dead the next day [joke], but it is something to be considered when making the decision as to which way the cat should jump. My Father didn't get that choice, he got up from the breakfast table and was dead before he hit the floor at age 63.

Expert:  TonyTax replied 2 years ago.
I can only repeat what I said in my previous post. There is no need for you to repay any of the lump sum as, based on your income figures, you will be a basic rate taxpayer for 2014/15 and, therefore, the tax charge on the lump sum will be limited to 20%.

Ask your accountant to check his figures and to give you a simple explanation of your tax position. If he cannot do that and there are many who can't resist using complicated terms, find one who can. I am 100% confident in my uinderstanding of the rules.

Take a look here for my answer to your previous question on repaying the lump sum.
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15915
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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