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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15977
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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sirs I have an income this year of £29954 this is made up of

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sirs I have an income this year of £29954 this is made up of private pensions and small income from a partnership. at 69 years of age I delayed taking my state pension and recently opted to take a lump sum £41500, I paid tax at source of 20% my question is does my salary and the lump sum of £33000 count towards taking me into the 40% tax bracket even though I paid tax on the £33000

The rate of tax you pay on the lump sum is determined by totalling your other income, deducting your personal allowance and seeing what your top rate of tax is on the balance. You don't include the state pension lump sum in that calculation.

If your income excluding the lump sum in 2014/15 is no more than £41,865 (£10,000 personal allowance + £31,865 20% tax band), that makes you a basic rate taxpayer so you will only pay tax at 20% on your state pension lump sum, not 40% as you might expect. Take a look here for more information.

I hope this helps but let me know if you have any further questions.
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Customer: replied 3 years ago.

in talking to my accountant I still feel unclear as to my tax liabilities

my question is after paying tax on my lump sum taken from my state pension does the sum I've taken add to my years earning whereby that pushes me into the 40% tax band, whereby I would appear that I'm paying tax twice

The state pension lump sum is taxed as a stand alone source.

The calculation to determine what tax rate you pay on your state pension lump sum does not include the lump sum itself. This doesn't just apply to what rate of tax is deducted at source by DWP. Provided you don't suddenly have a new source of income in the same tax year which takes you into a higher tax band than the one that has been deducted at source from your lump sum, you won't pay any more tax on it.

Take a look here for some examples.

Customer: replied 3 years ago.

thanks for your reply, I am due to receive a sum in the region of £58000

exlusive of my original £7000 investment this relates to a property whereby I was party to a deed of trust the occupier has died and the property was sold late last year, with the information you hold I have several questions, no 1 I haven't received any monies on this sale, and would it benefit my tax situation if I delayed cashing my cheque until after 5th april if not what will be my tax position be bearing in mind the information you have re my lump sum state pension that I recently took

lastly would there be any benefit in setting up a tust deed between my wife and myself to minimize tax on the £58,000

Capital Gains Tax is charged at 18% or 28% depending on the level of your income and will not affect the tax on the lump sum.

You cannot set up a trust to divide your state pension for tax purposes between yourself and your wife.

Customer: replied 3 years ago.

thank you when I refered to a trust I had the monies from the sale of the property in mind, also you didn't say whether in delaying cashing my cheque from the sale of the property until after april 5th would assist my taxable position. you state that capital gains is between 18% and 28%

I always thought it was 40%. in the basis of the info I've given you how do you see my liabilities. many thanks

I think this question has expanded into other topics so you may need to start another question and, if you would like me to answer it, just mention my name in the body of the question.