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bigduckontax, Accountant
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I have retired as Postmistress after 30+years and received

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I have retired as Postmistress after 30+years and received £180000+ as a lump sum payment. I would like to mitigate the tax payable on this. Are there special rules for Post Office payments. Can I use part to pay off a buy to let mortgage or put some in a pension fund - then how quickly could i withdraw - my health is compromised so anything long term does not really work. Grateful for any ideas
Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question. Your inquiry is a tad short on detail so I have thrown in a few possibly relevant points. There appear to be no special rules for Post Office employees. You can do what you like with the moneys received. If you take out a SIPP you can go back three years to utilize unused pension contributions levels which must not exceed 100% or remuneration, 40K current tax year, 50K 11/12, 12/13, 13/14, 14/15. You will loose your personal allowance by a pound for every two you exceed 100K in remuneration in the tax year you receive your lump sum. If this lump sum is actually redundancy pay then 30K of it is tax free. Paying off your buy to let mortgage is probably a good move as from April 2017 to April 2020 mortgage interest relief from rental income on buy to lets will be successively withdrawn. If this lump sum is actually a pension pot repayment then 25% is tax free, but if you are an impaired life with under a year to live it may be entirely tax free. I do hope that my reply has given you some food for thought.
Customer: replied 2 years ago.
Thank you. The payment is for loss of office . If I put say £80K into a SIPP - possibly bonds - can I start withdrawing after say 3 months or is there a waiting period? Also if I buy a small wood is this inheritance tax free? Can I take a lump sum and invest it in another business of which I am a Director and thereby avoid the necessity of paying tax on it in the current tax year. If you have any other suggestions they would be much appreciated. Thank you.
Yes; what you are doing is known as Pay and Vest where you make contributions and convert it to a pension immediately. Alternatively you can withdraw your pension pot, 25% will be tax free, however up to 20% or even more could be gobbled up in charges. Here is the general position regarding woodlands from the Gov UK web site: 'You have to include the value of woodland when valuing an estate, but you might not have to include the value of the timber.With Woodland Relief, whoever inherits the woodland only pays Inheritance Tax [IHT] on the trees when they’re sold or given away as timber.You can’t get Woodland Relief if the woodland also qualifies for Agricultural or Business Relief.' The full gamut of IHT this can be found here: You have indicated that this payment is redundancy pay in which case the first 30K is tax free and the balance taxed at your marginal rate of tax. You can use these moneys for whatever you like, but reinvesting it in another business does not attract roll over relief which is a method of deferring capital gains to some future, indeterminate date. Your only real money spinner in these situations is the use of private pension funds and you appear to have already grasped this possibility. As Benjamin Franklin once sagely observed that in life there are but two certainties, death and taxes. Please be so kind as to rate me before you leave the Just Answer site.
Customer: replied 2 years ago.
It is not strictly redundancy pay - I chose to retire and relinquish my office and the payment was in compensation for this - it allowed the Post Office to appoint another Postmaster and change the terms of their Contract. Might I still be able to claim the £30K expemtion.
Apologies for not getting back to you sooner but I have been away.
No problem, I am answering you in any event from a time zone seven hours ahead of the UK. If this was not redundancy then it would effectively be payment to you for the sale of your Post Office business. In that case it would be subject to Capital Gains Tax (CGT) after deducting your Annual Exempt Amount (AEA) of 11.1K. You would deduct the original cost of your business and the balance, the gain, would be taxable at 18% or 28% or a combination of the two rates depending on your income including the gain in the tax year of sale. However, you would be entitled to Entrepreneurs' Relief which would limit your exposure to a flat rate of 10%. Alternatively, if you are buying into another business you might be able to use Roll Over Relief, but this merely postpones CGT to some future indeterminate date when you final sell up. Roll Over Relief is explained in some detail here: I quote an extract: 'To qualify for Business Asset Rollover Relief:you must buy the new assets within 3 years of selling or disposing of the old ones (or up to one year before)your business must be trading when you sell the old assets and buy the new onesyou must use the old and new assets in your businessYou can claim relief on assets including:land and buildingsfixed plant or machinery, eg a printing press' There is a danger that you have fallen foul of the second bullet point. I do hope that I have shed some light on your situation. In fact your case is very complex and you might be well advised to employ a trusted, local professional to advise and negotiate with HMRC on your behalf.
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Customer: replied 2 years ago.
Thank you for this advice
Delighted to have been of assistance.
Thank you for your excellent support.