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tax advice please on lump sum

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happyfella
happyfella Community member Posts: 504 Empowering
edited October 2021 in Benefits and income
hi, we are trying to work out our finances. My wife who will be 65 in august will be receiving a lump sum pension of £6,000 in august. She works and comes out with £770 every four weeks. i do not work as i receive full pip for both and unable to work. i have just checked on the tax calculator and it says when my wife receives her lump sum she will have to pay £1,400 tax on it. can i confirm that is correct, and also can i ask, if they will take it in one go from her pension pot or will they take it each month from her wage. at the moment she does not pay tax due to how little she earns. will this lump sum also affect her receiving the carers element on universal credit. any advice would be great, as we are trying to plan for the future.

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  • woodbine
    woodbine Community member Posts: 12,134 Championing
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    I assume the £6000 is from a personal pension pot? Is that the full value of the pot? 25% of a defined cont. pension can be taken free of tax, the remaining 75% is taxed at your notional income tax rate, if her only income is below £12,5080 before tax then her notional rate will be 0% and any tax they take from her should be refunded on request.
    Is the pension with a current employer? if so they might advise, if not then HMRC are excellent at telling you what's what over the phone.
    Hope that helps.?

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  • happyfella
    happyfella Community member Posts: 504 Empowering
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    hi, sorry, yes that is the full value of the pension pot. her normal yearly wage is £10,100  her pension is with her currently employer through legal and general
  • Lisatho11987777
    Lisatho11987777 Scope Member Posts: 5,911 Championing
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    I took my pension pot out last year it was 12,000  but I received 10,000 mine was tesco pension  
  • happyfella
    happyfella Community member Posts: 504 Empowering
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    I took my pension pot out last year it was 12,000  but I received 10,000 mine was tesco pension  

    what age are you if you dont mind me asking, and did you carry on working at tesco. my wife works there, and this is the second pension. she receives £90 a month from the first pension pot, so she wants to take it all for the second pension, but does not want to be hit with a big tax bill.
  • calcotti
    calcotti Community member Posts: 10,010 Championing
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    Remember that if the lump sum together with any existing savings takes your joint savings over £6000 you need to inform UC.

    The inclusion of the carer element in your UC calculation is not affected
    Information I post is for England unless otherwise stated. Rules may be different in other parts of UK.
  • happyfella
    happyfella Community member Posts: 504 Empowering
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    calcotti said:
    Remember that if the lump sum together with any existing savings takes your joint savings over £6000 you need to inform UC.

    The inclusion of the carer element in your UC calculation is not affected

    thank you.
  • woodbine
    woodbine Community member Posts: 12,134 Championing
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    Is the £90 per month pension after or before tax?

    Assuming it's before tax her income for 2021/22 will be £10,100 + £1080 (pension)+ £4500 from this pension (the first £1500 is tax free) a total of £15,680 minus tax allowance of £12570 giving a taxable income of £3110 taxed at 20% = tax payable for year of £622

    If the £90 per month is after tax that will reduce the £622 to around £400.

    The best idea is to try and send proof of tax code or this years P60 to legal and general.

    I'm not sure where the £1400 tax figure came from?

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  • happyfella
    happyfella Community member Posts: 504 Empowering
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    it is before tax. it is a private and work pension. what i did ref the tax, i put it in a tax website. i added her wages for the year and then added the lump sum on top and it come out with £1,400 tax
  • woodbine
    woodbine Community member Posts: 12,134 Championing
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    i think my figures are pretty accurate but a call to HMRC would help sort it.

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  • happyfella
    happyfella Community member Posts: 504 Empowering
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    what i did was to add the pension together and my wifes wages and then the lump sum using this https://www.moneysavingexpert.com/tax-calculator/ and this is what it came out with, but i will speak to legal and general. so i added her 4 weekly wage, to her pension, and then the lump sum.

  • Lisatho11987777
    Lisatho11987777 Scope Member Posts: 5,911 Championing
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    I left tesco didn't work for 6 months then I did another job I took it out when I was 55  I now have another pension 
  • calcotti
    calcotti Community member Posts: 10,010 Championing
    edited May 2021
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    Happyfella, if the £6000 is the gross amount of the pension payment and 25% will be tax free then you should only take £4600 into account when calculating the tax liability.

    Also, you should put that figure in the pension box, not the wage box (because NI is calculated on the wage but is not due on the pension).

    Don’t know where tax free allowance of £11,329 comes from. Tax free allowance for 2021-22 is £12,570. Does she have other circumstances that reduce her allowance?
    Information I post is for England unless otherwise stated. Rules may be different in other parts of UK.
  • happyfella
    happyfella Community member Posts: 504 Empowering
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    calcotti said:
    Happyfella, if the £6000 is the gross amount of the pension payment and 25% will be tax free then you should only take £4600 into account when calculating the tax liability.

    Also, you should put that figure in the pension box, not the wage box (because NI is calculated on the wage but is not due on the pension).

    Don’t know where tax free allowance of £11,329 comes from. Tax free allowance for 2021-22 is £12,570. Does she have other circumstances that reduce her allowance?

    thank you for that.
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