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Memory fades

Or wishful thinking ??

Didn't find your answer?

I have a dim recollection of claiming for a client that a State Pension lump sum be spread the teax years to which it related. I can't find this anywhere

Is it me ??

 

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Lone Wolf
By Lone_Wolf
30th Sep 2020 16:10

I think I know what you're referring to.

If the taxpayer has chosen to defer the state pension and then taken a lump sum, then it is taxed in the year of receipt I believe . Is it not taxed at their marginal rate of tax as opposed to being added to their other income- so if they were below the personal allowance for that year then they'd get it tax free?

But here's what I think you're referring to. I have encountered a case in the past where the lady wasn't paid the correct state pension. She went through some sort of claims process, and got paid a lump sum for a good few years of backdated payments. The tax treatment of that was that the amounts were taxable in the years to which they actually related to. We had to write to HMRC with all the details as it spanned more than 6 years if I remember right.

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Replying to Lone_Wolf:
Lone Wolf
By Lone_Wolf
30th Sep 2020 16:14

Here's an extract from Croner-i with the legislative reference for my first point:

"Section 7(1) Finance (No2) Act 2005 confirms that a charge to Income Tax arises when a person becomes entitled to a state pension lump sum. But section 7(2)(b) advises that any state pension lump sum shall not be taken into account when determining the person's total income."

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By Wanderer
30th Sep 2020 16:21

Okay

Firstly you have to distinguish whether it is arrears or a genuine lump sum. Arrears are 'jobbed back' to the relevant tax year.

Then when it is a genuine lump sum (memory fades but possibly no longer possible) you have to look at the maximum tax rate in the year of receipt and tax the lump sum at that rate. With a bit of planning you can (could) get substantial lump sums at 0%.

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RLI
By lionofludesch
01st Oct 2020 07:34

A bloke from Wakefield recently got £140000+ in back pension. 80 years old, he was still working and thought that barred him from claiming.

Doesn't solve your query, but interesting nonetheless.

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