cash balance

[bristo]

My mate turned 65 in May he is a year older than me he has taken his 65 benefits he took all his cash balance money paying tax on the 75% but now his wages and pension are being taxed at 40% tax office are trying to sort this out they said it will be reviewed in April it seems the lump sum has been included in his yearly wages and pension Has this happened to anyone else and if so who is to blame

[freespeech]

My mate turned 65 in May he is a year older than me he has taken his 65 benefits he took all his cash balance money paying tax on the 75% but now his wages and pension are being taxed at 40% tax office are trying to sort this out they said it will be reviewed in April it seems the lump sum has been included in his yearly wages and pension Has this happened to anyone else and if so who is to blame

It's almost inevitable that tax will be paid until it sorts itself out as that is how PAYE works. 40% is applicable from £50,271 so if you have an income of over £1,000 in any week then it will hit 40% tax. If he took all his cash balance money I suspect that accounted for more than the lump sum it was designed to cover so the rest would have been taxable.

It shouldn't have been a surprise as your mate would have ticked all the boxes when he decided on his options prior to it being paid.

[RobertT]

As Freespeech has already said, when large lump sums are paid out in one go, the tax office often assumes that will be the case for every week/month for the remainder of the financial year, therefore 40% tax is applied.

It's HMRC that tell your employer or pension provider what tax rate to apply to your income, so it's HMRC you have to contact to get it changed.

It should sort itself out by the end of the tax year, but you can claim a refund before then:
https://www.gov.uk/claim-tax-refund

[Jaggs]

Do you know how much his cash balance was worth when he took it. If he's had that and is still working while taking his pension I think there is a chance that he will find himself paying the 40% tax bracket on some of his income this year. He might get some back as has been said by Robert and frrespeech but even when it all works out he should prepare himself for the possibility that some of his income this year might be taxed at 40%

[bristo]

Thanks for the reply HMRC have said what you have both said he is phoning them back tomorrow hopefully he can get it sorted out before next April I shall be careful when I claim my 65 pension next year

[grchpo]

In the process of claiming my NRA65 & my estimate shows, after paying the lump sum, my cash balance will still have £10,000 left. Will I have to take this & pay tax on it & at what rate ? Thanks

[RobertT]

In the process of claiming my NRA65 & my estimate shows, after paying the lump sum, my cash balance will still have £10,000 left. Will I have to take this & pay tax on it & at what rate ? Thanks

Once the DBCBS has been used to fund the tax free cash, any excess money will be paid out as an Uncrystalised Pension Funds Lump Sum(UFPLS). Which basically means the first 25% of that is also tax free, with the remainder coming under normal PAYE income tax rules.

As long as your total taxable income is between £12,570 and £50,270, you'll pay tax at 20%.
Although HMRC sometimes initially levies tax at 40% on one off lump sum payments, in which case you'd be entitled to a refund.

As you're taking your NRA65, I don't think you have the choice to leave the excess DBCBS cash with the RMPP?

There may be the option to transfer it out to a personal pension, but check with RMPP, as I'm not sure. Either way when you subsequently access it, the same 25% tax free and the remainder being classed as income, will apply.

[grchpo]

Thanks Robert for confirming that