Deferred state pension - lump sum

[stableboy]

I understand that the lump sum which results from deferring my state pension will be taxed at my marginal tax rate. But in which tax year? The year I claim the pension or the year I receive the lump sum. I am thinking of claiming now but what if I do not get the lump sum until 20/21.

[robbob]

Hello stableboy

I understand that the lump sum which results from deferring my state pension will be taxed at my marginal tax rate.

Personally i wouldn't use the term marginal rate here
the official hmrc wording is

Your state pension lump sum is taxed at the highest rate charged on other income received in the year.

an example would be as follows
your income is £1 below the personal allowance level - any state pension lump sum cannot put you into next tax bracket so the lump sum is taxed at 0%

But in which tax year? The year I claim the pension or the year I receive the lump sum. I am thinking of claiming now but what if I do not get the lump sum until 20/21.

You have two choices when you start taking your state pension whether you want the lump sum now (taxed this tax year) or whether you want the lump sum payment delayed till the following tax year - in which case it's taxed in the following year.

Note this always used to be a specific question that was asked presumably for the avoidance of doubt and i would always say if you have any doubts timing wise check with hmrc. I don't know but i am guessing there could be a timing issue here if you take your state pension 1st April and elect for lump sum the same tax year - this may not give hmrc time to process your lump sum payment before 5th April depsite teh fact you have indicated such. We are near end of tax year now so if you want money this year and havent claimed yet i would recommend spcificlaly checking with hmrc ref timing implications of last minute decision.


https://www.gov.uk/hmrc-internal-manuals/paye-manual/paye94090#IDAZKO0B

[stableboy]

Thanks Robbob for your helpful reply and the brilliant link to the HMRC internal manual. All seems clear to me now. The lump sum will be assessed in the year of entitlement rather than when it is received unless you choose for it to be taxed in the following year. Excellent. Thank you.