Chapter EIM74650
| Published date | 22 May 2014 |
| Record Number | EIM74650 |
| Court | HM Revenue & Customs |
| Issuer | HM Revenue & Customs |
For many years, anyone meeting the requirements for receiving the State Pension (that is, having reached the State Pension age and having a sufficient National Insurance contributions record) has been able to defer receipt of the State Pension by not submitting a claim for payment of the pension. Anyone deferring their pension is compensated for the amount foregone by receiving enhanced weekly pension payments once a claim for payment takes effect.
However, the rules changed with effect from 6 April 2005 as part of the government’s policy of encouraging flexible retirement.
Anyone already deferring their claim at 5 April 2005 or beginning a period of deferral after that date can choose to defer for as long as they wish. Where the period of deferral from 6 April 2005 (or, if later, the date on which deferral began) extends for less than 12 months, then the pensioner will receive an enhanced weekly payment of State Pension. The rate of enhancement in respect of the State Pension foregone from 6 April 2005 is greater than the rate previously applied but otherwise there is little changed from the previous position. The weekly payments of State Pension are chargeable to tax as pension income under Part 9 Chapter 5 ITEPA 2003 (see EIM74600).
In contrast, where a person defers for a period of more than 12 months beginning on or after 6 April 2005, then in respect of the amount foregone after 6 April 2005 the pensioner can choose to receive either
- an increased weekly amount of State Pension, or
- a one-off lump sum, and the weekly State Pension paid at the standard rate (or possibly an enhanced rate if the period of deferral began before 6 April 2005, in which case the weekly State Pension will be enhanced as compensation for the amount foregone during the period of deferral up to 5 April 2005)
There is no change to the way in which the weekly State Pension is charged to tax.
However, new legislation at sections 7 to 10 Finance (No.2) Act 2005 ensures that the State Pension lump sum payment is chargeable to Income Tax. Because each lump sum payment will be a significant amount, the...
To continue reading
Request your trial