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Hi My wife is 63 in September and she had deferred collecting her state pension until then, consequently she has ammassed a substantial sum.

by John Morton 27 July 2010 |

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My wife has never earned enough to pay income tax, if she had opted to collect her pension at age 60 she would still not be paying income tax.
The pensions authorities have informed her
what the amount will be on her sixtieth birthday and that she will recieve this as a lump sum, howver she will be liable to pay the income tax on the substantial sum.
My question is: Since she has never paid tax and if she had collected her pension at retirement age, she would still not pay tax then will she legally be liable to any such tax levy should because she is collecting her pension 3 years later.
Please emlighten me.
Best Regards.
John Morton

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36

Ruthless Investor posted
John Morton,

Your wife will only pay income tax on any earnings, wheather
through pension or working, only if her yearly income goes over the Tax
Free Allownace threshold. At present the tax free allowance is £6475.
Anything she earns over this amount will be taxed at 20%.

Everyone is liable to pay tax once their income crosses the tax free allowance threshold. If in the previous years your wife had not earned income over the tax free allowance then she is not liable to pay tax, but if her income goes over the tax free allowance threshold, then she is liable to pay tax in the year her income goes over the tax free allowance threshold.
Posted on 27 July 2010 | Love 0 loves Report
410

manzanilla posted
She will need to pay tax on the lump sum - but only at her current rate - which is zero!
See this http://www.hmrc.gov.uk/pensioners/pension-later.htm#3
A taxable lump sum payment

If you put off claiming your State Pension for at least 12
consecutive
months, you can choose to receive a one-off lump sum payment and
your
State Pension paid at the normal rate. The lump sum payment,
when you
claim it, will be based on the amount of normal weekly State
Pension you
would have received, plus interest added each week.
Your lump sum will not affect the rate at which you are already
paying
Income Tax - it will be taxed at the same rate.
Similarly, if you are entitled to a higher age-related
allowance (see
guide below for information about age-related allowances), and a
lump
sum would otherwise take your income above the limit beyond
which the
age-related allowance starts to be reduced, you will keep the
higher allowance.
manzanilla
Posted on 27 July 2010 | Love 0 loves Report
824

MikeGG1 posted
John
If your wife is in average or above average health I would suggest it would be better to take an enhanced pension from now rather than take a taxable lump sum.
The rate of increase for a female is good. The same is not the case for a male. The reason for the difference is that it is the same rate of increase for both sexes and women start receiving it earlier and then live longer.
Please bear in mind that the personal allowance goes up significantly in April and then again when she is 65.
Depending on what other income she has or will have you can adjust the start of the pension to get the most advantage.
Mike
Posted on 27 July 2010 | Love 0 loves Report

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