How are my pensions 'valued' for Lifetime Allowance purposes?

peterg1965

Thanks once again, some really useful information. I find the HMRC technical notes very unclear, and your responses have added much clarity.

My thinking is that I may stop contributing to my SIPP at the end of this tax year and divert funds into ISAs (both my wife and I). That way, if I am fortunate enough to be promoted it will reduce the potential tax bill for exceeding the AA (although I understand I can use unused AA from the previous 3 tax years) and also reduce the chances of exceeding the LTA. I will probably then apply for the fixed protection as there is nothing to lose by not doing so.

My wife also has a DB pension (NHS), although this is in a state of flux, as is probably changing to a CARE scheme although I have no information about this presently. I will look at the advantages of diverting some funds into buying added years or a standalone PP, but am inclined not to do this.

GhIFA

No problem PG65, glad it has been useful to you.

jamesd

You might consider whether using VCTs is appropriate. The tax free income from them can be quite useful, as can the initial 30% tax relief, capped at tax paid that year, and lack of CGT. Must hold for five years or repay the tax relief if you sell sooner, unless you've died first.

GhIFA wrote: »

The balance of the drawdown fund would be measured again at age 75. For LTA purposes the value at age 75 would be taken and then reduced by the amount that was designated to drawdown at the original crystallisation I.e if the fund had grown to £600k, it would be reduced by £300k ( the original drawdown fund) leaving £300k to be measured against the LTA.

Do you have a reference for that which I can go and read? There was RPSM11104640 but that has been replaced by RPSM11104645 and that seems to say at the start that there is no second check at age 75 for crystalisations made on or after 6 April 2011, then seems to confirm later in BCE 5B that there's no second check for funds already designated for drawdown, just any uncrystalised part. But maybe I'm reading that wrongly in some way?

peterg1965

jamesd wrote: »

You might consider whether using VCTs is appropriate. The tax free income from them can be quite useful, as can the initial 30% tax relief, capped at tax paid that year, and lack of CGT. Must hold for five years or repay the tax relief if you sell sooner, unless you've died first.

Do you have a reference for that which I can go and read? I don't recall reading of a second check, so it seems that I have some more learning to do...

James, Here is a link to the HMRC technical note I just found, it mentions the second test about one third of he way down.

http://www.hmrc.gov.uk/manuals/rpsmmanual/rpsm11100030.htm


I will look at VCTs, but know absolutely nothing about them, or more importantly the risk of investing in them.

jamesd

Thanks. At least as I read things, that's been replaced for those reaching age 75 from 6 April 2011 with the BCE 5B rule in RPSM11104645. But an IFA is an actual expert so maybe I'm just misreading it. But it seems to conflict with the basic principle to carry out a second test on already crystalised funds, so it would be an interesting feature.

jamesd

VCTs vary greatly. Some are high risk long term and speculative, others are relatively low risk on the VCT scale, perhaps medium to medium high on the fund scale. Some of the fixed exit ones might be lower than that. Something like the Baronsmead Linked Offer might be of interest, perhaps. There are a number of other linked and top-up offers around for well established generalist VCTs, that's just an example, not a specific suggestion.

Note that I've yet to personally use VCTs so there are others who are more familiar with those offering good deals than I am.

GhIFA

jamesd wrote: »

You might consider whether using VCTs is appropriate. The tax free income from them can be quite useful, as can the initial 30% tax relief, capped at tax paid that year, and lack of CGT. Must hold for five years or repay the tax relief if you sell sooner, unless you've died first.

Do you have a reference for that which I can go and read? There was RPSM11104640 but that has been replaced by RPSM11104645 and that seems to say at the start that there is no second check at age 75 for crystalisations made on or after 6 April 2011, then seems to confirm later in BCE 5B that there's no second check for funds already designated for drawdown, just any uncrystalised part. But maybe I'm reading that wrongly in some way?

No, think you're right James, if post 2011. Apologies PG65, got that one slightly wrong.

VCT's would be one option, as would EIS's (which can also give IHT relief if relevant), and only have to be held for three years. Whether these are appropriate will depend on your circumstances.

jamesd

I didn't know about the pre-2011 rule at 75 so I learned something new. Thanks for giving me the incentive to learn a bit more.