Pension Fund - Trivial Amount

[John Brown]

I'm cashing in a Pension Fund under the trivial amount rules and understand that after taking 25% tax free the rest would be subject to UK tax.

Because I'm resident here how is it treated in France.

It's hardly made any profit over the last 8 years and is only just back past the original investment value.

I know I must declare Income,  but getting your investment back with no real profit is it defined as income

John

[parsnips]

[quote user="John Brown"]I'm cashing in a Pension Fund under the trivial amount rules and understand that after taking 25% tax free the rest would be subject to UK tax.

Because I'm resident here how is it treated in France.

It's hardly made any profit over the last 8 years and is only just back past the original investment value.

I know I must declare Income,  but getting your investment back with no real profit is it defined as income

John

[/quote]

Hi,

     Under new regulations (not yet applied) lump sum pension payments are treated as follows;

Where the contributions were subject to tax relief any lump sum over 6 000€ will be subject to a special calculation- 1 /15 of  the sum (minus 10% ) will be added to the household's taxable income and the additional tax due on it calculated. This is then multiplied by15 to calculate the tax payable. This method avoids an unreasonably large tax bill in the year of receipt.

If the sum comes from a scheme where there was no tax relief on the contributions it is taxed as investment income with no special tax treatment, and only the gains would appear to be taxable. This type of pension is normally only relevant to high earning corporate officials.

[John Brown]

Thanks Parsnips

Could I just confirm that calculation. Its the second, multiplied by 15 that I'm no sure about.

Say, lump sum of £11,500,  divided by 15 = 766 , minus 10% = 690, multipled by 15 = £10,350 added to income

When is this regulation likely to come into force ?

Thanks again , John

[idun]

Trivial?

We had a letter about a trivial sum the other week and that was an offer of £254 to cash in completely one of my husband's pension schemes. Other wise he would get about 24p a week.

Some of us obviously have different ideas of 'trivial'.

[Russethouse]

Idun, There is a regulation about it, the first result in google was this : http://www.sharingpensions.co.uk/pensions_simplification.htm#text5

I've got a much smaller amount being dealt with too.

[parsnips]

[quote user="John Brown"]Thanks Parsnips

Could I just confirm that calculation. Its the second, multiplied by 15 that I'm no sure about.

Say, lump sum of £11,500,  divided by 15 = 766 , minus 10% = 690, multipled by 15 = £10,350 added to income

When is this regulation likely to come into force ?

Thanks again , John

[/quote]

Hi,

 It's not quite like that...... it would be 11500 x (say) 1.18 =13570€ / 15 = 905 -90  = 814. --this figure is then added to your net annual income (say 20 000€) and the tax worked out , then the tax on the bare 20 000€ subtracted. The  figure resulting is then multiplied by 15 to get the tax due on the pension money.

In the example 20 814 tax due (married)= 488

                        20 000..........................=  444

                                     extra tax due =44 x 15 =660€ total tax due 1 148€

If the whole sum was added it would work out as  34 230 € tax due 2 114€

The system prevents going up into a higher tax band.  (all tax calculated using an official ready -reckoner)

The law has been passed and applies (in principle) from 1/1/2011, but detailed instructions will have to be issued to tax offices and this could take some time .

if I were you I would take the payment (into a non-french bank) and only declare it if questioned by the tax people.

[John Brown]

Thanks for all your help, Parsnips

I think I've got it now !

I'll leave it the UK for a bit I think.

Idun, I don't think its a Trivial Amount! It's the definition the Pension People give it. If the value of the fund is less than £17,500, its less than 1% of your total pension funds and you are over 60 you can have it all as a lump sum

John

[AnOther]

Remember we are talking about tax free lump sums in excess of €6000 now being liable to tax according to parsnips formula.

With the trivial commutation ceiling currently set at £17,500 the 25% tax free sum would today be around €4900 and hence fall well outside the new law.

The balance of the fund would be taxed in UK at your marginal rate and under the DTA would not be liable for tax again in France.

It follows therefore that trivial commutation payouts will be not liable to any additional tax burden in France beyond that normally levied on worldwide income - assuming disclosure of course [blink][:$]

EDIT: The trivial commutation limit for the year 2010/2011 is £18,000 not £17,500

[John Brown]

One final comment on this topic, from me.

Don't budget on getting most of the money straight away.

Mine was taxed as if it was a single weeks wage and they stopped over £4500 in Tax.

You have to wait till after 1st April for the Tax Man to work out how much to refund or apply for a P53 Form from your UK Tax Office

Double Glazing will have to wait a bit longer !

[AnOther]

That sounds completely wrong to me, was it deducted under PAYE or as a witholding tax ?

[Russethouse]

 I'm expecting my trivial amount to be taxed and  understand I will be able to reclaim some of the tax by filling in a form

[AnOther]

As I understand it, trivial pension or otherwise, the tax free lump sum from a UK private pension should be paid 'tax free'.

The balance of a trivial commutation is taxed at your marginal

rate, which for most will be 20%, and you should be able to reclaim this by self assessment.

Have you been told differently ?

My OH has a trivial pension which we plan to cash in in the not too distant future so I have a personal interest in learning if it is treated other than I expect.

[Russethouse]

My sister is dealing with this on my behalf and told me to expect to pay some tax, but that I would be able to claim it back (whether its all or just some I can't remember)

My sister is  an IFA who  specialises in pensions work She has the G60 (Pensions), K10 (Retirement Options) and K20 (Pension Investment Options) elements of the Advanced Financial Planning Certificate.....so I guess she knows what she is doing. I'm seeing her tomorrow I'll try to remember to ask her.

[idun]

They were discussing this on Radio 4 the other day and that is exactly what is happening, almost emergency tax is being paid on these one offs and then one has to negociate to get one's money back via tax returns. Stinks actually!!!

Get onto your MP and start screaming blue murder, this is not 'right' or fair!

RH they are taking a lot of tax on 'small' amounts and depending on the time of year, they said that there could be a long wait to get it back, as most people would get quite a lump back.

[Russethouse]

 I found this : http://www.hmrc.gov.uk/incometax/overpaid-thro-pension.htm#5

[AnOther]

This should only happen when commutating a trivial occupational pension provided by an employer.

In the case of a proper private pension, such as contracted out SERPS for instance, PAYE and tax codings are irrelevant and insurance companies have no authority to deduct tax from the tax free element.

[Russethouse]

 Mine has nothing to do with any employer -   as I said I'll see what I can find out.

[Mikep]

Are you sure about the "trivial" rules, John?

My understabding was that the sum total of ALL your personal pension funds had to be below the trivial limit for you to take it as cash. If this is right, you could get into a real tangle!

[Russethouse]

  The info I have is that 25% is tax free and the remainder is taxed at your highest rate, however the revenue often apply 40% initially and if that isn't your highest rate then you can claim the difference back. This is not a company pension.

[John Brown]

I have been dealing with some Muppets who took over the Pension Fund from Shabby National.

All they say is "we are following guidelines from HMRC"

They sent me a breakdown of the figures ( Still no money in my account after 10 days )

The tax free element was 25%

No personel allowances were given on the rest

A few pounds at 10%

A few hundred at 20%

A few thousand at 40%

and the rest at 50%

They have included a P45 and said in a covering letter " if you think you have paid to much tax ask the HMRC for a refund" or wait till after 1st April and hope HMRC sort it out for you

I'm ticked off because I asked about Tax in a letter to them and they didn't reply to that specific question

When you apply for the refund you have to list any other private pensions and give the total % allowance they consumed !

John

[idun]

As I said, start screaming blue murder, this is a con, you don't owe this money, and they are having a free loan from you, OR do they pay interest? They should, if they do not.

Trouble for self assessment people is that they put in their tax forms a lot later in the year, wonder if they too can get this back from 1st April.

And what of the poor souls who get their amount in say April or May 2011, they have to wait for a year? VERY BAD!

Wish I had paid a little more attention to the 'money box' sort of program when it was on.

[Russethouse]

 John, My understanding is that 75% is treated as income so it will depend very much on your tax status.

[Mikep]

Could I suggest that you have a look at this article:

http://news.bbc.co.uk/2/hi/programmes/moneybox/4796084.stm

It may be out of date (since 2006) if the rules have changed again, but I was not aware that they had in relation to "Trivial Funds".

[Russethouse]

 I think the point is that everyones situation is different, (thats why IFA's prosper) I know what is going to happen in my situation and I suspect that if I wasn't a tax payer at all I'd probably be able to claim  more back, but when I asked this morning I was told that the 25% tax free stood and the rest would be treated as income.

The link you give is full of different scenarios but unless one of them is yours exactly its hard to compare...

I found this here : http://www.pensionsadvisoryservice.org.uk/workplace-pension-schemes/final-salary-schemes/cashing-in-pensions-(triviality)

Tax

If you do cash-in a pension under triviality rules, a quarter of the cash paid is tax-free with the remainder treated as taxable income in the year it is received.

The cashing-in of rights under an occupational scheme will be subject to the agreement of the scheme's trustees.

 

I hope that helps.....

 

 

[Rabbie]

[quote user="Mikep"]Are you sure about the "trivial" rules, John?
My understabding was that the sum total of ALL your personal pension funds had to be below the trivial limit for you to take it as cash. If this is right, you could get into a real tangle!
[/quote]I can confirm that this is the case. All your pension funds must be less than  £18,000 if you cash them in the tax year 2011-12.