Client has deferred his State Pension past his 65th birthday in 2013 as he was and is a higher rate taxpayer. A large lump sum could be claimed. He is now going to stop trading and sell his surveyor's practice. He is a generous man and would wish to reward his staff with a sizeable bonus in addition to their redundancy entitlements. I have explained that the tax that would apply to the lump sum would depend upon his tax rate. He has a number of Gift Aid payments and if his income were no longer taxable, HMRC would demand 20% on these. It is my belief that this 20% is NOT his taxable liability but a clawback of the tax deemed to have been deducted from any Gift Aid payments. As such, I would not expect the lump sum to be taxable if his income was less than his allowances. What do others think?
Replies (10)
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Just dealing with a similar situation.
Running the figures through our tax package this DOESN'T make the pension lump sum taxable.
Not saying that's right though! Have a good read of online filing exclusion 87 as this is at least one example where HMRC's calculations don't work with gift aid & pension lump sums.
The gift aid payments will be charged to tax at step 7 of the calculation so will not affect the tax rate on the lump sum. But I disagree with the above post that the lump sum is not taxable; I think it is taxable but at a zero rate because the step 3 income is zero. See s7 FA(2) 2005.
defer the pension for another year and then it will be taxed less as long as the tax rate in year of deferral is basic
Surely HMRC would demand income tax on the basis that the claimed Gift Aid payments were invalid?
Quite username!
i would hope that the real issue is the tax on deferred state pension, gift aid is optional and i refer to Tim reply above
Quite username!
i would hope that the real issue is the tax on deferred state pension, gift aid is optional and i refer to Tim reply above
Well decrypted!
Oh, quite so. Tim's step 3 point ended the need for further debate of the lump-sum situation - leaving the rum issue of Gift-Aid and zero tax