Exceeding the Lifetime Allowance

peterg1965

Apologies, yet another question from me regarding the LTA and tax consequences of exceeding the £1.25m limit.

Scenario: Defined Benefit pension value £950,000- valued at the BCE. SIPP value at 55 £600,000 and crystalised after DB pension. Therefore LTA exceeded by £300,000.

I understand that the £300k within theLTA can be taken as 25% tax free and the remainder in flexible drawdown, but what happens to the other £300k? Can I keep it in the drawdown SIPP by paying 25% (£75k) as a one of charge and then draw it down with the other flexible drawdown pot? Can I also take it all as cash by paying a one off 55% tax charge (£165k) and taking the remainder out of the SIPP?

Are these options correct, or have I got it wrong? Are there any other options other than fixed protection? Thanks

GhIFA

Peter, yes, that is correct. 55% tax if taking the excess as a lump sum or 25% tax if taking income from the excess.

peterg1965

GhIFA wrote: »

Peter, yes, that is correct. 55% tax if taking the excess as a lump sum or 25% tax if taking income from the excess.

Thank you. So in this scenario, if keeping the excess in a Drawdown SIPP, I can pay the 25% (£75k in this case) and then combine the two separate pots of SIPP drawdown money and just take it out as I require and pay the income tax on it? That combined drawdown pot can then grow without any limit until the next LTA 'test' at age 75?

As I will probably be a HRT taxpayer in retirement, I guess there may be merit in taking the whole £300k out of the SIPP as cash and pay the 55% tax charge and invest it outside of the SIPP? This may mean paying slightly less tax overall.

All very complicated.

GhIFA

Peter, based on the information you have posted here, and in previous threads, you have a a very specific set of circumstances, which require some very careful planning and consideration in terms of which is the best route for you to take regarding Fixed Protection etc. With the best will in the world,(and no disrespect or offence intended) I don't think you will find the answers on the internet. You need to sit down with someone and "crunch" all the numbers to ascertain what is likely to be the best route for you.

Bear in mind that you will have exceeded the LTA using the scenario set out in this thread. It is possible that at age 75 you could find yourself subject to a further LTA charge depending on how much is left in the drawdown (but this could be further complicated by the fact that some of that fund could have already effectively had an LTA charge levied against it at the original BCE).

You're correct, your own circumstances are complicated, and for that reason I think you may need to look beyond the internet for answers (which you may already be doing, in which case I'll shut up!).

peterg1965

GhIFA wrote: »

Peter, based on the information you have posted here, and in previous threads, you have a a very specific set of circumstances, which require some very careful planning and consideration in terms of which is the best route for you to take regarding Fixed Protection etc. With the best will in the world,(and no disrespect or offence intended) I don't think you will find the answers on the internet. You need to sit down with someone and "crunch" all the numbers to ascertain what is likely to be the best route for you.

Bear in mind that you will have exceeded the LTA using the scenario set out in this thread. It is possible that at age 75 you could find yourself subject to a further LTA charge depending on how much is left in the drawdown (but this could be further complicated by the fact that some of that fund could have already effectively had an LTA charge levied against it at the original BCE).

You're correct, your own circumstances are complicated, and for that reason I think you may need to look beyond the internet for answers (which you may already be doing, in which case I'll shut up!).

You are correct and no need to shut up! No offence or disrespect taken either, i am a stubborn old fool who likes to be in control. Whilst the figures here do not necessarily reflect my position accurately, they could do in 7/8 years time.

I realise that the Internet and this forum are not the manner in which to seek answers to complicated financial issues, however, firstly I am trying to educate myself in the nuances of this area of pension/tax and secondly, once I am a little more knowledgeable, I need to go and seek professional financial and tax advice. I have a year to do so before I need to commit to applying for Fixed Protection which would effectively take me out of a final salary pension scheme.

I am also a little frustrated that plans I made for my retirement six years ago are somewhat up in the air with the Govt having reduced both AA and the LTA, there is a fair bit at stake for me here, like paying off a big mortgage eventually!

I do appreciate your comments though and I am a little wiser than I was a few months back with your input and with that of others.