Considering your Lifetime Allowance

Spring is here and so we’ve just completed another tax year, and as Financial Advisers lots of our advice around this period is concerned with Pensions. Accordingly, Lifetime Allowance enquiries seem to be coming in more and more frequently, and so I thought I would devote an article to this subject to try and help individuals.

The Lifetime Allowance charge was first introduced in 2006.

What is Lifetime Allowance?
This is the cumulative amount of Pension benefits that can be drawn from a Pension without triggering an additional tax charge. If funds aren’t taken by the time you’re 75 years old then they will also be tested. The current Lifetime Allowance is £1,073,100 and any amount over this is taxed at 55% if you take it as a lump sum and 25% if it’s taken as an income.

The calculation to see if this applies to you does vary depending on what type of Pension scheme you have and, even if you took a benefit before 2006, subsequent benefits will bring these earlier benefits into the calculation. I do feel it’s important to seek specialist advice if you are near to the Lifetime Allowance, as there may be action you can take to reduce the amount of tax you could pay. There are still forms of Protection available allowing you to protect your Lifetime Allowance which may be applicable to you. For me the starting point is to know if this does actually affect you.

However, I do think it’s important to remember it is only a tax charge and it does not mean you can’t exceed the Lifetime Allowance. For example if your employer is paying into your Pension this is a valuable benefit even if it results in an additional tax. It’s also worth noting that there are employers who will offer alternative arrangements for those with Lifetime Allowance issues, and again this may be an avenue that could be explored.

We offer a free without obligation consultation, so if you are concerned about this why not utilise it to see if this is applicable to you and whether there are steps you can take to aid this.

This article is based on our understanding of current and proposed legislation as at April 2021, which is subject to change. It’s a brief summary that cannot cover every situation. All figures, unless stated, apply to the 2021/22 tax year. Any tax benefits or charges will depend on your circumstances. If you’re at all unsure you should seek personal advice.

Allowances, limits and thresholds correct at the time of writing, but are subject to change in the future. Please confirm the current position before taking any action

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