Lettings Relief and State Pension Deferred Lump Sum

Lettings Relief

Lettings relief currently provides up to £40,000 of relief (£80,000 for two joint owners) to those who let out a property that is, or has been in the past, their main residence. This means that individuals can claim the relief on a property even if they have not lived in it for a long time. The Government is consulting on a proposed change to this relief which would have effect from 6 April 2020. If enacted, the changes would restrict the relief to those periods where the owner was or is in shared occupancy with the tenant. If you may be affected by this, please let us know and we will advise and update you on the position.

State Pension Deferred Lump Sum

You can put off claiming your basic state pension. This can be especially useful if you’re still working, as it means you’ll get larger state pension payments later. You can also defer receiving payments once you’ve already started claiming, though be careful as you can only do this once. If you choose not to take your pension straightaway when you reach state pension age, there are two different ways you can take the benefit:

• Choose a bigger weekly pension…

For those who qualified for the state pension age before April 6 2016 and opted to delay, a year’s wait was worth the full value of that year’s state pension plus 10.4% extra.

It worked out that, for every five weeks you delayed claiming, your future weekly allowance was increased by 1%. So delay for a year and you’d have got the full pension plus 10.4% extra.

However, those who reach state pension age on or after 6 April 2016, have not been given such a generous deal.

Now the 1% rate of increase for deferring your state pension only applies for every nine weeks you delay – not five. This works at an annual boost of 5.8% – a vastly lower benefit.

• Or as a one-off lump sum later…

If you reached your state pension age before April 2016, you had the option to be able to defer and then be paid the extra as a one-off lump sum. The tax position on this could be very attractive since you are taxed on your marginal rate in the tax year you take out your deferred lump sum payment irrespective of how much it is (so it not added to your income). So if you marginal rate of tax is 0%  (because all of your other income was covered by your personal tax free allowance), the lump sum deferred state pension is tax free! After collecting the lump sum, you then get the standard pension which is added to income and taxed at your marginal rate of tax.

So someone who’d built up an annual state pension of £6,000 say would get £6,150 in twelve months’ time – and then be paid their weekly pay out as normal.

However, this lump sum option has been abandoned for those who become eligible for state pension after April 2016.