State pension - Lump sum

State pension - Lump sum

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My client has received part of his state pension as a lump sum, I am in the process of preparing his self assessment return and calculating the tax liability.  As I understand it, tax on a state pension lump sum is 'taxed at the highest rate of tax charged on other income'. 

In other words, if all his other income (excluding the lump sum) is within the basic rate threshold of 20%, then all of the lump sum received would be taxed at 20% irrespective if this additional amount took him into the higher rate of 40%.

My client's other income is below the basic rate threshold, in other words 0%, does this mean that his lump sum will not carry any tax.  His other income is presently £7,900 and his lump sum is £9,900 - Total income including lump sum £17,800

I think that I understand this is correct and no tax is due.  I have phoned HMRC and received conflicting advice.  Just wondered if anybody out there could shed some light.

Hopefully I will only get a response from those who have had dealings with this, I don't want to be left even more confused. 

Thanks for all your help

Replies (7)

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By Cathy R
21st Aug 2015 11:13

I haven't dealt with it but

This would certainly suggest that you are correct, see page 26.

 

 

https://www.gov.uk/government/uploads/system/uploads/attachment_data/fil...

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By thomas34
21st Aug 2015 11:14

Correct (I think)

I think you must be correct since if the marginal rate of tax on all other income is 20% then the lump sum will also be taxed at 20% irrespective of its amount - an illogical rule but vital to know before choosing when to take a lump sum.

Unusually your client is a non-taxpayer before the lump sum so should pay no tax on it. Presumably he received the lump sum net of a 20% deduction?

 

 

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By Tim Vane
21st Aug 2015 11:35

Yes there is no tax to pay on the lump sum at that level of income. What is the nature of the other income - should this client even be in SA and should you be asking for the TR to be withdrawn?

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Replying to taxtotal:
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By Summer
24th Aug 2015 10:42

My client is a company director so no avoiding SA I'm afraid.

Thanks so much for your input, it really has made it all much clearer.  Always good to be able to put things out there and get feed back 

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Replying to Rgab1947:
By Tim Vane
24th Aug 2015 11:21

Incoming!

Summer wrote:

My client is a company director so no avoiding SA I'm afraid.

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By taylorstaxservices
21st Aug 2015 11:44

Agreed

Agree 100% with Tim.  Get out of SA if possible and no tax on lump sum.  I have done a few of these.

 

 

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RLI
By lionofludesch
24th Aug 2015 12:05

Here we go again !

You just know what's coming.

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