Reclaiming Tax from Whole Pension Pot Taken As Lump Sum
Discussion
Can anyone advise on this please?
Background. Mrs S contracted out of SERPS with Royal London many many years ago and gave up work when our daughter was born with no intention of ever going back into paid employment. At 60 RL have written to her advising what she wants to do. The 'pot' is small (less than £6k) so she has decided to take all of it as a 'lump sum'. Whilst 25% is obviously tax free RL have decided to tax the other 75% at BR despite initially being told small pots less than ~£10k are paid gross, then they changed their mind. So the money has arrived with £700+ tax deducted along with a P45.
Contacted HMRC and they say reclaim using a P50Z. So armed with the form a few questions based on the following being asked:
"You will be asked to give us:
1) amount of pension flexibility payment
2) amount of tax deducted from the payment
3) details of any income you've received since you stopped working and any tax paid
4) the name of your last employer
5) details of any state benefits you have received since the start of the tax year if you have parts 2 and 3 of your P45, the amounts of pay you received and tax you paid."
So (1) and (2) are covered off in what she received and the tax RL deducted. When we get to (3) the P50Z states "Give the amount of income received since leaving your last employment". She hasn't been 'employed' (for more than 20yrs) and it gets somewhat confusing when RL issue a P45 stating she left their employment two weeks ago when they paid the pension. So is the answer to (3) Nil and (4) Royal London?
To add into the mix she receives rental income from a property which is under the threshold to pay tax (and NI) and will still be if they include the currently taxed pension lump. So, does this get included anywhere on the form?
Background. Mrs S contracted out of SERPS with Royal London many many years ago and gave up work when our daughter was born with no intention of ever going back into paid employment. At 60 RL have written to her advising what she wants to do. The 'pot' is small (less than £6k) so she has decided to take all of it as a 'lump sum'. Whilst 25% is obviously tax free RL have decided to tax the other 75% at BR despite initially being told small pots less than ~£10k are paid gross, then they changed their mind. So the money has arrived with £700+ tax deducted along with a P45.
Contacted HMRC and they say reclaim using a P50Z. So armed with the form a few questions based on the following being asked:
"You will be asked to give us:
1) amount of pension flexibility payment
2) amount of tax deducted from the payment
3) details of any income you've received since you stopped working and any tax paid
4) the name of your last employer
5) details of any state benefits you have received since the start of the tax year if you have parts 2 and 3 of your P45, the amounts of pay you received and tax you paid."
So (1) and (2) are covered off in what she received and the tax RL deducted. When we get to (3) the P50Z states "Give the amount of income received since leaving your last employment". She hasn't been 'employed' (for more than 20yrs) and it gets somewhat confusing when RL issue a P45 stating she left their employment two weeks ago when they paid the pension. So is the answer to (3) Nil and (4) Royal London?
To add into the mix she receives rental income from a property which is under the threshold to pay tax (and NI) and will still be if they include the currently taxed pension lump. So, does this get included anywhere on the form?
Armitage.Shanks said:
Can anyone advise on this please?
Background. Mrs S contracted out of SERPS with Royal London many many years ago and gave up work when our daughter was born with no intention of ever going back into paid employment. At 60 RL have written to her advising what she wants to do. The 'pot' is small (less than £6k) so she has decided to take all of it as a 'lump sum'. Whilst 25% is obviously tax free RL have decided to tax the other 75% at BR despite initially being told small pots less than ~£10k are paid gross, then they changed their mind. So the money has arrived with £700+ tax deducted along with a P45.
Contacted HMRC and they say reclaim using a P50Z. So armed with the form a few questions based on the following being asked:
"You will be asked to give us:
1) amount of pension flexibility payment
2) amount of tax deducted from the payment
3) details of any income you've received since you stopped working and any tax paid
4) the name of your last employer
5) details of any state benefits you have received since the start of the tax year if you have parts 2 and 3 of your P45, the amounts of pay you received and tax you paid."
So (1) and (2) are covered off in what she received and the tax RL deducted. When we get to (3) the P50Z states "Give the amount of income received since leaving your last employment". She hasn't been 'employed' (for more than 20yrs) and it gets somewhat confusing when RL issue a P45 stating she left their employment two weeks ago when they paid the pension. So is the answer to (3) Nil and (4) Royal London?
To add into the mix she receives rental income from a property which is under the threshold to pay tax (and NI) and will still be if they include the currently taxed pension lump. So, does this get included anywhere on the form?
You never pay any NI on rental income so the NI threshold does not apply to rental income.Background. Mrs S contracted out of SERPS with Royal London many many years ago and gave up work when our daughter was born with no intention of ever going back into paid employment. At 60 RL have written to her advising what she wants to do. The 'pot' is small (less than £6k) so she has decided to take all of it as a 'lump sum'. Whilst 25% is obviously tax free RL have decided to tax the other 75% at BR despite initially being told small pots less than ~£10k are paid gross, then they changed their mind. So the money has arrived with £700+ tax deducted along with a P45.
Contacted HMRC and they say reclaim using a P50Z. So armed with the form a few questions based on the following being asked:
"You will be asked to give us:
1) amount of pension flexibility payment
2) amount of tax deducted from the payment
3) details of any income you've received since you stopped working and any tax paid
4) the name of your last employer
5) details of any state benefits you have received since the start of the tax year if you have parts 2 and 3 of your P45, the amounts of pay you received and tax you paid."
So (1) and (2) are covered off in what she received and the tax RL deducted. When we get to (3) the P50Z states "Give the amount of income received since leaving your last employment". She hasn't been 'employed' (for more than 20yrs) and it gets somewhat confusing when RL issue a P45 stating she left their employment two weeks ago when they paid the pension. So is the answer to (3) Nil and (4) Royal London?
To add into the mix she receives rental income from a property which is under the threshold to pay tax (and NI) and will still be if they include the currently taxed pension lump. So, does this get included anywhere on the form?
Eric Mc said:
I presume you already complete Self Assessment tax returns?
Good question. HMRC are aware of the 'income' as they themselves raised it when she enquired about repayment of missing NIC for State Pension but never been directed to SA, given the income falls within the personal allowance?Armitage.Shanks said:
Eric Mc said:
I presume you already complete Self Assessment tax returns?
Good question. HMRC are aware of the 'income' as they themselves raised it when she enquired about repayment of missing NIC for State Pension but never been directed to SA, given the income falls within the personal allowance?Eric Mc said:
If she completes SA returns, I'd just put the figures in the relevant tax return and the tax will automatically sort itself out.
She doesn't complete SA. The 'advice' has been that as she doesn't exceed the personal allowance with all her 'income' (bank interest etc) combined there is no tax to pay. This has now caused me to question that albeit she could end up filling in a form that will state the obvious?Eric is correct in that the easiest way to sort all this would be to complete Self Assessment. I own a small practice and happy to sort if she needs any help.
So long as her pension amount (~£6k) + rental income > £12.5k, she will receive the amount in full in April when the SA is submitted as we have to wait for the tax year to end to do this.
The forms are all well and good but HMRC are incompetent at best, and in my experience its a slow and painful process dealing with them on Self Assessment, never mind the 'smaller' departments.
So long as her pension amount (~£6k) + rental income > £12.5k, she will receive the amount in full in April when the SA is submitted as we have to wait for the tax year to end to do this.
The forms are all well and good but HMRC are incompetent at best, and in my experience its a slow and painful process dealing with them on Self Assessment, never mind the 'smaller' departments.
Armitage.Shanks said:
To add into the mix she receives rental income from a property which is under the threshold to pay tax (and NI)
It’s worth checking the tax situation for the rental: the threshold for SA is not whether tax is due, rather it’s based on the amount of rent or profit:https://www.gov.uk/renting-out-a-property/paying-t...
Best
TH
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