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Will my husband have to pay 40% of his lump sum from his Police Pension in tax?

cazzieboo
by cazzieboo 30 January 2012  |  Comments 1 comment  |  Love Love  0 loves

My husband retired from the Police force after 30 years service at the age of 51. He took his pension and a tax free lump sum and returned to work for the same Police Authority in a civilian role. He has now been told there is a possibility that he may have to pay 40% tax on his lump sum and also 40% tax on any future earnings. Apparently this is due to changes in tax laws in the 2010 Finance Act.

My husband has paid into his pension for 30 years in the belief that his lump sum would be tax free and neither he nor the Police Authority who employed him had any idea of this tax change.

As you can imagine this situation is extremely stressful, is causing marital discord and other problems for my husband and I and also other ex-police officers affected.

Does anyone have any knowledge of these changes? It would seem that wherever we look we cannot get the answers we are looking for.

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Comments (1)

  • MikeGG1
    Love rating 824
    MikeGG1 posted

    So far as future earmings are concerned, it has always been the case that earnings from all sources are added together for tax purposes and pensions classify as earnings. He will get his personal allowance @ 0% and then the next slice would be 20% and then 40%.

    Where those lower slices are taxed is discretionary. It could be that the lower bands are used up in taxing the pension, in which case the current earnings would be taxed at 40%. If the pension is less than the total of the personal allowance plus the 20% band then the balance of the 20% band would be taxed at 20% in the current earnings.

    However, it could be done differently. It could be that the whole pension is taxed at 20% and adjusted allowances could be offset from the current earnings.

    The tax codes on the two incomes would indicate how it is being done. A better way would be to look at the Notice of Coding that he receives. That shows the calculation.

    You haven't indicated when your husband took his pension. That would determine the regime appropriate to his pension. He did, of course, receive his pension and lump sum earlier than the current minimum age of 55.

    Mike

    Posted on 31 January 2012 | Love Love  0 loves Report

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