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State Deferred Pension

Client's only income next year will be Property Income Distributions taxed at basic rate

If the deferred pension is drawn will it be taxed at 20%, despite other income, as above, being covered by personal allowance and a refund of income tax due?

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09th Jan 2019 10:24

If the pension is drawn it becomes part of the clients overall income and if that exceeds the personal allowance it is taxed. You would need to add everything together to work out if there is a liability or not.

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09th Jan 2019 10:54

I believe that you are referring to a State Pension lump sum (not arrears). If so then ignore the answer above.

Here's some examples:-
https://www.litrg.org.uk/tax-guides/pensioners-and-tax/what-tax-do-i-pay...

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to Wanderer
09th Jan 2019 11:21

Thank you for this

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10th Jan 2019 17:13

Tax deducted at source is not an income tax liability. Thus, if the individuals income tax rate is zero (having reclaimed the tax withheld at source) or 0% (i.e. where say the savings or dividend nil rate applies) there's no tax to pay on the state pension lump sum.

Nonetheless the nice pensions people will withhold BR tax from the lump sum which will therefore also have to be reclaimed.

EDIT
I may have got the wrong end of the stick here - if it's arrears of pension then as other posts say, it's taxable as income for the year to which it related.

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to tonycourt
10th Jan 2019 17:30

tonycourt wrote:

....... or 0% (i.e. where say the savings or dividend nil rate applies) there's no tax to pay on the state pension lump sum.

Pretty sure you are wrong about that one.
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to Wanderer
10th Jan 2019 17:53

"Pretty sure....." On what grounds? I based my response on legislation not a gut feeling.

The legislation is easy to find, but if you're struggling just holler.

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to tonycourt
10th Jan 2019 18:25

tonycourt wrote:

"Pretty sure....." On what grounds? I based my response on legislation not a gut feeling.

The legislation is easy to find, but if you're struggling just holler.

Apologies I was trying to be polite. Basically you are wrong.

If the only other income was say £13,000 dividends, i.e. mostly covered by the PA & the balance in the 0% band then the State Pension lump sum would be taxed at 20%.

Run it through your tax software, here's the legislation as well:-
https://www.legislation.gov.uk/ukpga/2005/22/section/7
Look at the references to Step 3 income but if you're struggling just holler.

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10th Jan 2019 20:27

@Wanderer
I see the point you're making. I over egged the example by using £13,000. I should have kept it within the PAs (or PAs and BPR) because the starting rate and similar nil rates are ignored. Interestingly, that wasn't the position for 2006/7 and 2007/8 where the marginal rate of tax was relevant. Still that was then and this is now.

For the benefit of the OP: If the lump sum payable to your client is for deferred state pension and not just pension arrears, the position is as I originally indicated, i.e. no tax payable on the pension lump sum and you'll have to reclaim any tax withheld by the pensions people.

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to tonycourt
11th Jan 2019 05:15

tonycourt wrote:

I should have kept it within the PAs (or PAs and BPR) because the starting rate and similar nil rates are ignored.

Exactly! You overlooked the ITA 2007 changes.
Easily done, I've been guilty myself of reading original legislation rather than the current position.
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