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Taxing the lump

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06 April 2006 / Peter Arrowsmith
Issue: 4052 / Categories: Comment & Analysis , Income Tax
From April, those who have deferred their state pension can take a lump sum instead of an increment. PETER ARROWSMITH explains how these lump sums will be taxed.

THE RELEASE OF the Income Tax (Pay As You Earn) (Amendment) Regulations 2006 (SI 2006 No 243) in February may have surprised some practitioners imposing as it does many of the provisions of the 2003 PAYE Regulations for employers on to the Department for Work and Pensions. This change only adds the mechanics to provisions in F(No 2)A 2005 ss 7 to 10. The latter set the framework for the charge to income tax of state pension lump sums which were themselves created by the Pensions Act 2004. This article considers the way that the new lump sum will be taxed and considers some additional general points. However before we can consider the tax treatment of lump sums we need to understand just what they are.

State pension lump sum

Any person can now defer his state pension (still once only) and either ...

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