LIfetime Allowance in SIPP

ognum

I am a bit confused by the SIPP LIfetime Allowance perhaps someone can help.

Is it correct that in drawdown the lifetime allowance can be breached by income from investment within the SIPP?

If this is correct at what point must the pot be below the lifetime allowance and at what point must you take a lump sum from the fund and take a 55% tax hit.

Sorry, Im a bit confused any help would be gratefully received.

dunstonh

Is it correct that in drawdown the lifetime allowance can be breached by income from investment within the SIPP?

Once in drawdown, the lifetime allowance doesnt matter. The test would have been done on crystallisation. Crystallisation is one of the points where the lifetime allowance test is made.

GhIFA

Sorry Dunston, that is incorrect.

On crystallisation into drawdown, the amount designated to drawdown and the tax free cash lump sum will be tested against the Lifetime Allowance (treated as two separate benefit crystallisation events). Where funds remain in drawdown, there will be a further test at age 75. At this point the amount tested is the value of the drawdown fund at 75 reduced by the amount that was designated to drawdown at the original crystallisation event.

ognum

OK so now I know why I am confused.

ARe you saying that until the age of 75 the fund can accumulate and only at 75 there is a review and at that point if the fund is above the lifetime allowance the sum over the LA is taken as a lump sum and taxed at 55%.

If the fund is crystallised in portions and the LS taken in portions does the same follow?

GhIFA

ognum wrote: »

OK so now I know why I am confused.

ARe you saying that until the age of 75 the fund can accumulate and only at 75 there is a review and at that point if the fund is above the lifetime allowance the sum over the LA is taken as a lump sum and taxed at 55%.

If the fund is crystallised in portions and the LS taken in portions does the same follow?

At the point you initially crystallise and go into drawdown there will be a lifetime allowance test. If you are above the LTA at this point, then the charge will apply (55% or 25% depending on how you take the excess). If not then the proportion of LTA used up will be recorded.

At age 75 any fund that remains in the drawdown pot will be tested again against the LTA. To work out how much this is, the value at age 75 will be taken and then reduced by the amount that was designated to drawdown at the original crystallisation. If this amount takes you above that remaining proportion of the LTA, then the charge will apply to the excess.

If at age 75 the amount left in the drawdown pot is less than the amount that was originally designated then no charge is going to apply.

If you crystallise in phases, the same process will still apply, and the remaining drawdown fund at age 75 will be subject to an LTA test.

Should also add that, as I understand it, up until age 75, should you use any of the drawdown fund to purchase a lifetime annuity, it will also be subject to an LTA test on a similar basis.

jamesd

Note also that it is the value at age 75 and you can reduce that value by drawing an income. So you can reduce the chance of exceeding the lifetime allowance by starting drawing down early and at the maximum permitted rate.