Pension Lump Sum

jilt

A new client has received a lump sum of £10,000 from his personal pension. He has already paid £2000 tax on it but I'm not sure how to treat it. Is it treated completely seperately or is it added to his employment and self employment income for the year taking him into the 40% tax bracket (in total he'll have received nearly £40k)

Sorry don't mean to be lazy, I have looked on HMRC's site but couldn't see the answer and would like to email him back fairly quickly. Everytime I call HMRC lately they don't know the answer, say I need a technical advisor but there isn't one available, I wait a few days for a call back but never seem to get one. Must be a lot of staff on holiday or off sick or something.

Vonni

From your post I am assuming that this is definitely not part of the 25% tax free lump sum you can currently take from your pension pot prior to taking up an annuity.

Based on that assumption this pension income, paid in a lump sum, will need to be taken in to account when completing the SA return and calculating the tax payable.

In this instance if your client also has income from employment and self employment this may, as you say, push him into the higher tax bracket. However if the total income from all sources is as you say £40k then after PA's this would only leave £33,525 taxable for 2009/10 which is below the 40% rate.

As this source of income would appear to be 'new' it may be worth reviewing with your client what he expects his future income to be from that source together with any increase / decrease in employment and self employment. You can then forewarn him if there may be a likelihood of an additional tax charge with earnings at this level.

jilt

Thanks very much for your reply Vonni, much appreciated.