You can escape tax on your pension lump sum

G.H. writes: I have deferred my state pension as I am still working but will retire shortly. In the tax year 2019-20, my income will be below the tax threshold, so I will pay no tax.

When I claim my state pension, even with my other income, I will still be below the tax threshold. I was told I would only pay tax on my state pension lump sum if my total income is above the

threshold in the year claimed. So, I was alarmed last Sunday to read in your column about a gentleman who had to pay tax on his lump sum. THE lump sum is taxable when you stop deferring your state pension and begin to claim it, but this only applies as long as your other income makes you a taxpayer.

You can even claim the state pension but postpone the lump sum until the following tax year. This means that if your income drops and you become a non-taxpayer, the lump sum escapes tax.

What went wrong for the reader whose letter we published last week was that he received his lump sum in a year when he had still been earning.

He was therefore a taxpayer, so the lump sum was quite correctly taxable.