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bigduckontax, Accountant
Category: Tax
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I have deferred my state pension .5 years and accrued

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Hi I have deferred my state pension for 4.5 years and accrued £55,500 I have claimed my pension in May, June and July, receiving £1024 each month and have now stopped the payments. My question is this if I do not use my tax allowance of £10,600 up until April 6th 2016 will I be eligible to pay tax on my lump sum. I have no othr source of income

Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question. Here is the Gov UK advice on the taxation of the lump sum: 'You can choose to have your extra money paid as a lump sum, if you put off claiming your State Pension for at least one year without a break. This means that you will get a one-off payment based on the amount of State Pension you would have got if you had been claiming it, as well as interest on this amount. (The interest will always be at least 2% above the Bank of England ‘base rate’.) You will also get your State Pension at the normal rate when you claim it.If you get a lump-sum payment: • you may have to pay Income Tax on it (this depends on any other income you may have) • and you are making a new claim to Pension Credit or Housing Benefit, it will not be taken into account when working out your entitlement for these benefits.' So you see the lump sum is taxable, but depending upon your income in 15/16 will depend upon whether you will have any liability. The first 10.6K of income is tax free (your personal allowance) thereafter the basic rate is 20%, 40% over 31.865K. State Pensions are liable to UK Income Tax, but just to confuse the issue, are paid gross. I do hope that I have shed some light on your position.
Customer: replied 2 years ago.

Hi Keith so if I only claim say £9k in state pension during this tax year and have no other source of income will I have to pay tax on the lump sum, Will HMRC take into account the fact te I ave stopped my weeky pension to remain under the £10.6 tax free allance as my payment re £1024 per 4 weeks.

Yes they will, it will all come out in the wash so to speak when you make you self assessment tax return after the end of the tax year. The lump sum will be aggregated with all your other sources of income in the year to derive the amount of tax due to be paid or refunded as the case may be.
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