Deferred pre-6 April 2016 state pensions lump sums

Produced by Tolley

The following Personal Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Deferred pre-6 April 2016 state pensions lump sums
  • How ‘old’ state pension deferred lump sums are taxed
  • What happens if the person dies while deferring his ‘old’ state pension?
  • Planning points relating to deferred ‘old’ state pensions
  • General
  • Death of the deferrer’s spouse or civil partner
  • Scope of advice on state pensions

Deferred pre-6 April 2016 state pensions lump sums

As explained in the State pensionguidance note, individuals who reached state pensionage before 6 April 2016 could defer claiming their ‘old’ state pensionand, as long as they deferred claiming it for 12 months or more, they can claim a lump sum at the time of starting to claim a regular pension. Alternatively, they can claim a higher regular state pensionif they so wish.

Under the ‘new’ state pensionrules (for those reaching state pensionage from 6 April 2016), it is still possible to defer claiming but not to claim a lump sum ― the only option is to claim a higher regular state pension.

The old state pensionalso included provision for a surviving spouse or civil partner on the death of the pensioner, whereas (subject to some transitional provisions) the new state pensionis predicated on individuals building up their own discrete entitlement.

The purpose of this guidance note is to consider what happens to deferred old (pre-6 April 2016) state pensions on the death of the deferrer.

How ‘old’ state pensiondeferred lump sums are taxed

The way in which state pensiondeferred lump sums are taxed is explained in the State pensionguidance note.

To briefly recap, the lump sum is charged to income tax at the top rate of tax that the individual otherwise pays on his Step 3 income as determined by ITA 2007, s 23. This is applied at a ‘flat rate’, ie the lump sum is not added to total income and therefore does not push the taxpayer into higher rates.

For the purposes of this calculation, the starting rate for savings, savings nil rate and dividend nil rates are all ignored as these rates operate by allocating a part of one’s basic or higher rate tax bands to them. That is to say that if all of an individual’s taxable income falls into the starting rate for savings, that person

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