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bigduckontax
bigduckontax, Accountant
Category: Tax
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Re: - A defined benefit pension (e.g. Teacher's Pension),

Resolved Question:

Re: - A defined benefit pension (e.g. Teacher's Pension), where you get a lump sum as a benefit (where you haven't drawn from "the pot" - this is a benefit that pre-existed the current situation with defined contributions) - is it "tax exempt"? - in other words never considered a "taxable source" or is it just a sum which has a certain amount of allowance before you start paying tax (e.g. 25%) - which I understand makes it a "taxable source".
I understand that the Teacher's Pensions organisation has some sort of "excemption" certificate that means the lumps sums in the old, long standing defined benefits system are never brought to the attention of the "tax man". This has been confirmed by both the tax office and Teachers Pensions.
What I am trying to establish is whether in these circumstances, with this sort of pension, is it possible to define the lump sum as not coming from a "taxable source"? I know it's a really "picky" question but the definition here is really important.
Submitted: 3 months ago.
Category: Tax
Expert:  bigduckontax replied 3 months ago.

Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question.

As a recipient of one such pension I am happy to be able to confirm that your pension coming into issue with its lump sums etc is not a taxable event. Under the new rules, of course, if you then decide to liberate your pension then the sum liberated will be 25% tax free and the balance taxed at your marginal rate of tax, assuming that you are over 55 years of age.

I do hope that I have been able to set your mind at rest on this matter.

Customer: replied 3 months ago.
am I to understand that this lump sum doesn't count within the 25% at all - e.g. I have my lump sum and then decided to dip into my pension pot and ask for 40% of it, knowing that the first 25%is tax free and the other 15% would be taxed according to my income. I am not actually going to do this but I am currently in a battle about whether my lump sum is arguably from a taxable source.I have a son at Uni and have explained to Student Finance about my drop in income because of moving to a pension. (This will affect the size of his loan). They claim I will be better off than ever because of the lump sum! They claim it is from a "taxable source" and they won't accept that it's not e.g. it would never be subject to tax and the tax man will never even hear of it. I have drawn the parallel with a lottery win which I believe would be treated that same.
Customer: replied 3 months ago.
Please answer via email
Expert:  bigduckontax replied 3 months ago.

Your lump sum is not a taxable emolument.

If you dip into your pot post retirement then 25% is tax free and 75% taxed at your marginal rate of tax.

You might be better off under the Student Finance rules if savings are taken into account in the computation. You should check that they are correctly applying the computation formula, which may well not include savings..

bigduckontax and other Tax Specialists are ready to help you
Customer: replied 3 months ago.
Thank you. I think this may give me the confidence to continue to tackle them.
Cheers
Expert:  bigduckontax replied 3 months ago.

Thank you for your support.