Pension Tax Date

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I have a client who was made redundant on 31st March 2017 from her local council job and received a sizble redundancy payment of £76,247.77.  She also had the foresight to pay the maximum she could into a pension on 4/4/17.  All her redundancy paymentswere received before 5th April.

However, she decided to take early retirement as she was 55.  She choose to take a reduced pension and Increased lump sum of £141,575.14.  This payment was received on 18th April 2017. 

The redundancy is fine but my question is:  Is the pension taxable in the year she receives it (i.e. 2017/18) or on her retirement date (2016/17).  This will obviously have a huge impact on the tax she pays and when it's paid. 

Replies (8)

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By Accountant A
27th Jan 2018 17:35

Does the reference to "a huge impact on the tax" imply that you are planning to include the lump sum as taxable income?

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By arh
27th Jan 2018 18:24

She can only get her £30k tax free. The rest (more or less) will obviously be taxable

The pension payment on 4/4/17 can be used to extend her 20% rate banding for 2016/17. Given we are still in 2017/18 I would be advising her to make an additional pension contribution this year if the pension lump sum was taxable in the yer of receipt.

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By Accountant A
27th Jan 2018 18:48

If she ceased employment on 31 March 2017 (Tax year 2016/17), from what earnings will she make a pension contribution in tax year 2017/18?

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By arh
27th Jan 2018 19:09

Her £65k salary she received in the year (that was on top of her redundancy payment of £76k)

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Replying to arh:
By Ruddles
27th Jan 2018 20:37

She was made redundant on 31 March 17 yet received a salary of £65k after 5 April 17?

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By arh
27th Jan 2018 20:56

We diverse a little I think but yes, she was made redundant from the council - took her redundancy - cashed out her pension then as was only 55 went back to work elsewhere.

So is her pension she cashed out taxable in 2017 or 2018?

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Replying to arh:
By Ruddles
27th Jan 2018 21:09

It was your reference to receiving salary of £65k “on top of” the redundancy (and statement that she took early retirement) that confused. Pension should be taxed when received.

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Replying to Ruddles:
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By arh
27th Jan 2018 22:50

Sorry about that.

Thank you for the help.

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