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bigduckontax
bigduckontax, Accountant
Category: Tax
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Experience:  FCCA FCMA CGMA ACIS
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I have a question regarding income tax on my deferred State

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Good Morning
I have a question regarding income tax on my deferred State Pension where I anticipate taking the previously available Lump Sum option.
How do charge for your service?
Thanks
DB
Customer: replied 1 month ago.
To explain:
At some point I will be claiming my deferred State Pension , I think by way of a Lump Sum ,which I believe will be taxed at my marginal income tax rate. So if I could organise my affairs to have income within the tax free threshold I would not pay tax on the Lump Sum.
The problem is my wife and I enjoy property rental income of £40,000 pa ( £20,000 each)
Any way I can reduce my property income for one year?

Hello DB, I am one of the experts on Just Answer and pleased to be able to help you with your question. We don't, it is in the price negotiated between you and Just Answer.

Income tax will be liable on your State Pension from the moment you begin to draw it. This applies to any lump sum also. There is a concession available. Here is the guidance from the Low Incomes Tax Reform Group:

'The state pension lump sum is taxed in the year of receipt. But you can opt for receipt of the lump sum to be deferred to the next tax year to the one in which you stop deferring. You might choose to do that if, for example, you are a basic rate (20%) taxpayer in the year you stop deferring, but will be a non-taxpayer the following year.'

The same argument would apply also if you were in higher rates tax one year and not in the next.

I do hope that you have found my reply of assistance.

Customer: replied 1 month ago.
Thank you - did you see the second part of my question?:
At some point I will be claiming my deferred State Pension , I think by way of a Lump Sum ,which I believe will be taxed at my marginal income tax rate. So if I could organise my affairs to have income within the tax free threshold I would not pay tax on the Lump Sum.
The problem is my wife and I enjoy property rental income of £40,000 pa ( £20,000 each)
Any way I can reduce my property income for one year?

That is why I passed on the option from the Low Income boys.

The following are deductible from rental income [source: which]. Are you offsetting these?

'The most common types of expenses you can deduct are:

  • water rates, council tax, gas and electricity
  • contents insurance
  • costs of services, including the wages of gardeners and cleaners (as part of the rental agreement)
  • letting agents' fees
  • legal fees for lets of a year or less, or for renewing a lease of less than 50 years
  • accountant’s fees
  • rents, ground rents and service charges
  • direct costs such as phone calls, stationery and advertising for new tenants

The expense should be incurred wholly and exclusively as a result of renting out your property.'

Customer: replied 1 month ago.
The £40,000 p a joint income is NET of all the expenses you mention
I wondered if any way to allocate all the income to my wife for one year?

In theory, you can load more onto your wife's account if she has substantial duties in respect of property management. However, HMRC look askance at such schemes as attempts at tax evasion.

I am so sorry to have to rain on your parade.

Customer: replied 1 month ago.
You confirmed my hunch
Thanks

Delighted to have been of assistance.

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