8/18/2019 Lifetime Allowance Changes - Are You Affected?

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Can you protect yourself against the LTA charge?While exceeding the LTA might be a nice problem to have,

it does present a number of difcult choices if you want toavoid paying the associated charge. You could set up one

of two protection arrangements set up by the government,

but they come with certain conditions:

 

Fixed Protection – allows you to lock into the current lifetime

allowance of £1.25m (and benet from future falls in the LTA).

You can apply for Fixed Protection regardless of your current

pension fund size. However, you will have to give up your

pension savings (including any nal salary pension accrual

from 6 April 2016) – which is a major drawback if you benet

from your employer paying into your pension.

Individual Protection – If your pension fund is valued at between

£1m and £1.25m you can lock the value in the day before the £1m

comes into effect. The locked in value becomes your personalised

LTA and remains in place regardless of any future falls. You can

continue to save into your pension with this protection.

 

The right option for you will depend on your individual

circumstances. That’s why it’s essential to seek appropriate

nancial advice when it comes to your pension planning.

From 6 April 2016, the Lifetime Allowance will fall from £1.25m to

£1m. Any pension savings you have over and above this new limit

could be hit by a tax penalty of up to 55%.

What is the Lifetime Allowance (LTA)?The LTA is the maximum amount you can build up into a pension

over your working life and receive tax relief. 

Over the past 10 years the LTA has uctuated, rising from £1.5m

to £1.8m, reducing back to £1.5m, then to £1.25m and falling to

£1m in April 2016. And many fear it could be cut further in future

 – although from April 2018, the LTA will be indexed year on year

in line with the Consumer Price Index.

If you have pension savings above the LTA they will be subject

to a charge. This is:

 

• 55% if the excess is taken as a lump sum

• 25% if the excess is taken as income, for example as a scheme

pension, an annuity or drawdown. Income tax at your marginalrate will also be payable.

Testing the LTAThe LTA must be tested every time there is a Benet Crystallisation

Event (BCE). Currently eleven different BCEs reect the differentways in which you can draw benets – depending on the type

of pension scheme, its rules, the ‘shape’ of the benets and

circumstances (retirement, death, transfer overseas etc).

 

 A test may be applied more than once to the same pension

pot. For instance, when you choose a drawdown pension, a

test occurs at outset, then again when you use funds previously

designated for drawdown to buy an annuity or reach age 75,

whichever comes rst.

HM Revenue and Customs practice and the law relating to taxation are complex

and subject to individual circumstances and changes which cannot be foreseen.