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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15950
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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Good Morning I have a concern over a potential tax liability

Resolved Question:

Good Morning
I have a concern over a potential tax liability following my retirement on 31st August 2016.
My income at present is an occupational pension of £24200 from a previous employer,a current local government salary of £19000 and an annual Avc amounting to £ 300 after tax.
I have been provided with an option to take an estimated lump sum of approx £25000 from 1st September 2016 and an ongoing occupational second pension of approx £4000 per annum.Therefore in the new tax year to 05.04 2017 I have calculated that my gross income including the lump sum of £25000 will amount to £59446.
I am uncertain whether HMRC would charge me 40% tax for the excess over £32000 (I.e. £27446)which I believe is the figure for basic rate taxpayers. Does the taxman treat retirement lump sums differently for tax purposes or am I facing a large tax bill?
Your advice will be very much appreciated.
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
Hi. Is the retirement lump sum a redundancy payment or a commutation of some of your pension entitlement form that job which would result in a smaller monthly pension income?
Customer: replied 1 year ago.
It is a commutation of some of my local government pension.
Expert:  TonyTax replied 1 year ago.
Thanks. In that case, it should be tax free. You should check with your employer that what I have told you is the case. On personal pensions, 25% is usually the maximum cash lump sum that can be taken. On final salary schemes which is what the pension scheme you have asked about probably is, the tax free lump sum can be as much as 33%. I hope this helps but le tme know if you have any further questions.
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Expert:  TonyTax replied 1 year ago.
Thanks for accepting my answer.