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taxadvisor.uk
taxadvisor.uk, Chartered Certified Accountant
Category: Tax
Satisfied Customers: 4996
Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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I have a private pension fund of £21000. I plan to take it

Customer Question

I have a private pension fund of £21000. I plan to take it all in one go, which will result in 75% of it being taxed. So in effect, I will receive £21000 minus the tax. My question is, when reporting the figure to the DWP (I am on Pension Credit) do I give them the gross figure of £21k, or the net figure?
Submitted: 2 years ago.
Category: Tax
Expert:  taxadvisor.uk replied 2 years ago.
Hello and welcome to the site. Thank you for your question.Pension credit is income related benefit and therefore, only 75% on the pension fund would be deemed income.The tax free element is excluded from reporting as income but would form part of your capital that may or may not earn income depending on how it is utilised.I hope this is helpful and answers your question.If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.
Customer: replied 2 years ago.
I plan to take the whole amount in one go, which I've been told would be classed as Capital. The 75% of the £21k would be taxed - so when asked do i report the gross or net figure?
Expert:  taxadvisor.uk replied 2 years ago.
Jane, thank you for your reply.

As part of the whole amount would have been taxed at source and if you are told that the payment would be classed capital, then you should report the net figure as this is what you would get in your hand and would constitute your savings.

I hope this is helpful.
Customer: replied 2 years ago.
Can you clarify ic i take the whole lump sum in one go that it is deemed as capital as fas as the DWP are concerned.
Expert:  taxadvisor.uk replied 2 years ago.
Jane, thank you for your reply.

As you would be drawing the whole pension pot, although for income tax purposes the 75% would be deemed income, for pension credit purposes this figure would be treated as capital and taken into account to ascertain any savings credit you may be entitled to.
Pension credit is made of two components
guarantee credit - this is income related
savings credit - based on savings

You may find this document on pension credit from Age UK helpful. the link is here

http://www.ageuk.org.uk/Documents/EN-GB/Information-guides/AgeUKIG50_pension_credit_inf.pdf?epslanguage=en-GB?dtrk=true


I hope this is helpful.
Customer: replied 2 years ago.
I'm planning on spending half of it on some household essentials (new bed, freezer and second hand car.) Do you know if this would be acceptable to the DWP, and would I need to declare the whole amount received, or the amount I would have left (50% of it.). I'm a bit unsure of the dos and don'ts.
Expert:  taxadvisor.uk replied 2 years ago.
You would only declare what capital is left and forms part of your savings after expenditure highlighted.I hope this is helpful.
Customer: replied 2 years ago.
Thanks for the info. I'm worried about falling foul of the deprivation of capital rules that apply to some benefits, and wasn't sure how spending some of the lump sum would be interpreted.
Expert:  taxadvisor.uk replied 2 years ago.
Jane, thanks for your reply.

If you are happy and there are no more issues I will appreciate if you would kindly rate/accept the service I provided to ensure I get credited for it by Just Answer.

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Customer: replied 2 years ago.
I need more information about the deprivation of capital rules - If I were to buy a second hand car for about 8k, would I be breaking any rules? I expect to spend about 4k on replacing household appliances, furniture etc. I need an automatic car as I have a medical condition which affects my feet.
Expert:  taxadvisor.uk replied 2 years ago.
Thank you for your reply.I don't think there is deprivation of capital if you were to buy a car to suit your medical conditions amd some expenditure on replacement to household applicances and furniture. The factsheet here is helpful..look at 4.1 on page 8 of 27.http://www.ageuk.org.uk/Documents/EN-GB/Factsheets/FS40_deprivation_of_assets_in_the_means_test_for_care_home_provision_fcs.pdf?dtrk=trueI hope this is helpful.
Customer: replied 2 years ago.
As I will be turning 65 in Jan 2016, are the DWP a bit more lenient in their assessments? I think I read somewhere about a difference in rules for pensioners?
Expert:  taxadvisor.uk replied 2 years ago.
Jane, thank you for your reply.

I would not unduly worry about spending money on getting a n automatic car etc.. I don't know DWP behaviour but based on what you have stated there is certainly no deprivation of capital.

Enjoy the changes you wish to make.

Best wishes.