Body & Soul8 mins ago
Pension
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I can take my company pension in November when I am 55. I will also be getting a lump sum. Will I pay tax on the lump sum?
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For more on marking an answer as the "Best Answer", please visit our FAQ.No, your state pension is paid at a fixed amount per week, no lump sum is payable.
The only way you will get a lump sum from the state pension is if you defer it, then you can take the back payment in one go but that will be taxable.
If you have a Company or Private Pension then you can take the 25%.
The only way you will get a lump sum from the state pension is if you defer it, then you can take the back payment in one go but that will be taxable.
If you have a Company or Private Pension then you can take the 25%.
I've taken 3 different company pensions early as lump sums in the last 3 years and paid tax on all 3 and it is included in your total income for the year.I took the whole lot each time though rather than a bit each month. That would count as taxable income too and devalue it so I took it all at once each time
The reason why DJHawkes has identified he/she paid tax on all the pensions appears to be because the whole amount was taken as a lump sum. The 25% limit on each pension for tax-free was correctly identified right at the start of the thread.
Chipping in with one's personal experience without fully explaining can only cause confusion
Chipping in with one's personal experience without fully explaining can only cause confusion
Just seen Georgisemum's reply.
If the resultant monthly pension, together with any other income you have, takes you over the annual personal limit, you will pay tax on the excess.
For example, everybody has a tax-free personal limit of at least £10,600 in this current 2015-2016 tax year. So if you have earnings and/or pensions of another, say £10,000 per year, you will pay tax on this £10,000.
However, if your total income is below £10,600 a year, then no income tax is payable.
Its all here :::
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So.... its incorrect to say that you pay tax on your pension...rather you pay tax on the bit above the annual personal allowance of £10,600, WHEREVER it comes from. That is why most people pay some tax in retirement, if they have pension earnings additional to the Old Age Pension.
Hope that clears things up for Mum !
If the resultant monthly pension, together with any other income you have, takes you over the annual personal limit, you will pay tax on the excess.
For example, everybody has a tax-free personal limit of at least £10,600 in this current 2015-2016 tax year. So if you have earnings and/or pensions of another, say £10,000 per year, you will pay tax on this £10,000.
However, if your total income is below £10,600 a year, then no income tax is payable.
Its all here :::
https:/
So.... its incorrect to say that you pay tax on your pension...rather you pay tax on the bit above the annual personal allowance of £10,600, WHEREVER it comes from. That is why most people pay some tax in retirement, if they have pension earnings additional to the Old Age Pension.
Hope that clears things up for Mum !
You can take 25% of each private pension tax free. However, if you take the rest as a lump sum you will be taxed on it - and beware because it can take you into a higher tax rate. Also, if you choose to take the remainder as a pension instead of a lump sum, it will be considered part of your income and liable to be taxed as such
Perhaps its worth explaining the different types of company pension schemes.
A "Final Salary" scheme, increasingly rare these days, is what is called a Defined Benefit Scheme....that is, the resultant pension is set out in advance, according to a formula.
A good example would be ::
Annual Income £40,000 a year in the year that you retire. If you have worked for 40 years, you will get 40/80ths of your final salary as a pension.
So, last salary £40,00) pa, resultant pension = £20,000 pa, and the usual Tax Free Lump Sum would be 3 x annual pension = £60,000 pa.
The other main type of company pension scheme is a Money Purchase type, sometimes called a Defined Contribution Scheme
You and your employer will have contributed to a pension pot over your working life, and there will be a wodge of cash sitting there on the day you retire of whatever that wodge is. What annual pension that will give you will depend on how old you are. You can normally a Tax Free Lump Sum of up to 25% if you want to. Recent changes to pension legislation by Osborne has clouded the water on the situation, but the basic rules remain broadly the same.
Mumstheword....you haven't said what kind of company pension scheme you are in....I hope its a Final Salary Scheme !
A "Final Salary" scheme, increasingly rare these days, is what is called a Defined Benefit Scheme....that is, the resultant pension is set out in advance, according to a formula.
A good example would be ::
Annual Income £40,000 a year in the year that you retire. If you have worked for 40 years, you will get 40/80ths of your final salary as a pension.
So, last salary £40,00) pa, resultant pension = £20,000 pa, and the usual Tax Free Lump Sum would be 3 x annual pension = £60,000 pa.
The other main type of company pension scheme is a Money Purchase type, sometimes called a Defined Contribution Scheme
You and your employer will have contributed to a pension pot over your working life, and there will be a wodge of cash sitting there on the day you retire of whatever that wodge is. What annual pension that will give you will depend on how old you are. You can normally a Tax Free Lump Sum of up to 25% if you want to. Recent changes to pension legislation by Osborne has clouded the water on the situation, but the basic rules remain broadly the same.
Mumstheword....you haven't said what kind of company pension scheme you are in....I hope its a Final Salary Scheme !