• ARRSE have partnered with Armadillo Merino to bring you an ARRSE exclusive, generous discount offer on their full price range.
    To keep you warm with the best of Merino gear, visit www.armadillomerino.co.uk and use the code: NEWARRSE40 at the checkout to get 40% off!
    This superb deal has been generously offered to us by Armadillo Merino and is valid until midnight on the the 28th of February.

Taxation Of 22yr Lump Sum

read in the papers today, after the budget, that they are looking at taxing the lump sums at 40% for over £50,000 & 24% for below that.

am i reading this completely wrong OR is this a new way to save paying us our gratuities when we leave?

any help will be appreciated.

let just hope i misinterpreted it then, like i said i just got a quick look at his paper before he shot off.

but it did seem strange that there had been no mention of it before hand.
This is something that was being looked at a few years back as well. At the moment, it's only a small spark in the minds of the Revenue. Stems from the realisation that our lump sums are tax free (something that an MP didn't know until he was told on a unit visit).

It could well come in, and will impact on those who are unable to commute LESS than 40K (ie SGT and above). Those that do 22 years and are able to commute a sum of £39,999 are OK, but those who cannot reduce the lump sum are looking at big losses.

So - not part of Revenue armoury at the moment, but something they bring up occasionally to test the water. Worth keeping an eye on - see if you can find the original mention in the paper.
Hopefully this will not affect those that have elected to stay on the old pension, i can't see how they can just change terms of service/pension schemes on a whim. As it stands i have 3 years left to do but I would be looking at full commutation, todays rates put that figure at approx £54k..and i will need it! One of the reasons I agreed to take a few years continuance was because of this. Oh well, fingers crossed and all that.

Edited to add... That said I'm sure it couldn't happen overnight and as I've gone past my 22 there will always be the option to depart sharpish.
I might be wrong, but this may be the other end of the stick rather than a 22% or 40% tax on the lump sum, I believe that it might be to with cashing in a Contributory Pensions, taking the 25% lump sum and then reinvesting this money in another pension scheme thus effectively gaining two bites at the apple. (Although I do not know if Broon was opening or closing this loop hole)

I.e. You got Tax Relief on the money originally contributed and then by reinvesting the Lump Sum you can claim Tax Relief at 22% or 40%, depending on your income, again.

However, since we do not contribute to our pension directly we do not receive the 1st tranche of tax relief. Further only really rich fcukers are going to be able to cash a pension at 55 and then reinvest the lump sum in another pension.

Again, not my specialist area but A Day makes contributing to another pension scheme possible whilst still being a member of the Armed Forces Scheme. It is all about spreading risk and taking the treasury for ever penny you can get. £22 for every £78 invested, not bad really....
OK here we go....

The new pensions regime allows a tax free lump sum of 255 of the fund up to the lifetime allowance to be withdrawn when a person is eligible to take pension benefits.
However, the government is introducing an anti-avoidance provision to prevent a device known as recycling. the device works by taking a tax free lump sum from a scheme which is reinvested back into another scheme giving further tax relief on the amount invested. This in turn allows a further tax free sum to be paid out. The new rules will remove tax advantages in relation to lump sums which are artificially recycled in this way. the legislation is not intended to affect cases where a person withdraws a tax free lump sum as part of the normal course of taking pension benefits.
I hope this helps you - my accountant has just sent it to me.

Latest Threads