Tax on an old pension.

[Leothebear]

Wife had forgotten about a pension she had 50 or so years ago. Recently the Pension company contacted her via HMRC to remind her it was there.

It's now worth about £18.5k.

A friend suggested that the tax should be calculated on a year by year basis and not as a lump sum with HMRC will probably try and do.

Is that right? I'm not sure where she stands on this.

Hoping for advice!

Thanks Leo

[londoninvestor]

A friend suggested that the tax should be calculated on a year by year basis and not as a lump sum with HMRC will probably try and do.

Is she intending to withdraw it in a single lump sum, or spread over several years?

Is this a personal pension, or an employer scheme? (More likely the latter I guess, if it's from the 1970s.)

[Lootman]

A friend suggested that the tax should be calculated on a year by year basis and not as a lump sum with HMRC will probably try and do.

Is she intending to withdraw it in a single lump sum, or spread over several years?

Is this a personal pension, or an employer scheme? (More likely the latter I guess, if it's from the 1970s.)

I have a couple of these old occupational pensions from the late 1970s and early 1980s as well. They are also low value and so I have not bothered to claim them, not least because I do not want the tax complication.

It had not crossed my mind that a third party might notify me and somehow force me to start taking that pension. And I have assumed that no tax is due if I never claim them. Although if I was somehow forced to take those pensions I would cash them out in full, to avoid having to deal with PAYE.

Interesting issue though - can HMRC try and tax you on a pension that you do not wish to take? I would have thought not but do not know.

[Gerry557]

The tax is only due if you take it out and then you have your personal allowances to offset it.

So if she has no other income £12570 could be removed. You might want to consider only taking £10K

[londoninvestor]

The tax is only due if you take it out and then you have your personal allowances to offset it.

So if she has no other income £12570 could be removed. You might want to consider only taking £10K

And there should be a tax-free lump sum too, though on an old occupational scheme I believe it's not necessarily always 25% of the total value.

[XFool]

Wife had forgotten about a pension she had 50 or so years ago. Recently the Pension company contacted her via HMRC to remind her it was there.

It's now worth about £18.5k.

A friend suggested that the tax should be calculated on a year by year basis and not as a lump sum with HMRC will probably try and do.

Is that right? I'm not sure where she stands on this.

Sounds most unlikely to be right, to me! Any tax due on receipt of money received now will be charged at current tax rates, not 1970s tax rates.

[Alaric]

It's now worth about £18.5k.

A friend suggested that the tax should be calculated on a year by year basis and not as a lump sum with HMRC will probably try and do.

Is that right? I'm not sure where she stands on this.

It would probably be treated under the rules for deferred retirement of whatever scheme it was.

Ask the scheme what options are available.

[genou]

I think you are saying that arrears of pension will be paid in a single payment. In that case the pension scheme will tax it all as income of the year of payment. That's what they are supposed to do. But HMRC recognise that the payment should be spread across the years for which it was due. You'll need to contact HMRC to explain the situation. You need to ask the pension scheme for an account of years/amounts payable and supply that to HMRC to get them to recalculate the tax due.

[Lootman]

I think you are saying that arrears of pension will be paid in a single payment. In that case the pension scheme will tax it all as income of the year of payment. That's what they are supposed to do. But HMRC recognise that the payment should be spread across the years for which it was due. You'll need to contact HMRC to explain the situation. You need to ask the pension scheme for an account of years/amounts payable and supply that to HMRC to get them to recalculate the tax due.

OK but if instead I wanted to take the entire hit in one year, even though that may mean i pay more tax than staggering it, then I should be allowed to do that.

The alternative approach you suggest, whilst technically correct I feel sure, sounds like a whole lot of work and hassle.