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  • Tax on Pension Compensation

    I have a client who has taken a Pension Compensation as he was misadvised to leave a Company Pension Scheme and transfer his fund into a Private Pension Scheme. The Pension Ombudsman has ruled that this was bad advice and instructed the Pension Administrators to correct the situation. He has had a sizeable amount of money as compensation (over £100,000), with no interest. Tax at a notional 15% has been taken and appears to be on the basis that the first 25% of the compensation is tax free and the balancing 75% is taxed. This leaves him with a sizeable tax bill as it puts him into the 40% tax bracket when added to his self-employment. Having taken a lot of advice from Financial Advisers, he is getting conflicting information about the tax position - some feel it is compensation and not taxable and some are telling him that it is taxable. I've searched through all my tax books and guidance but cannot find anything about it and in 30 years of working Practice have never come across this one, so wondered what is correct. Thank you in advance for the help.