SIPP statement

ognum

Clearly this could be asked of the SIPP provider but perhaps the learned folks here can help?

If the annual statement of a fully crystallised SIPP states that the pension has cumulatively used 103% of the lifetime allowance what does this mean and what are the implications?

Thanks

dunstonh

If the annual statement of a fully crystallised SIPP states that the pension has cumulatively used 103% of the lifetime allowance what does this mean and what are the implications?

It means that the lifetime allowance has been exceeded and that the surplus will be subject to a tax charge.

If you have any transitional reliefs then it is possible the provider is not taking those into account with that figure. If so, there may not be a tax charge. However, if there are no transitional reliefs held then it would be a tax charge.

ognum

The pension is in drawdown and the owner was under the lifetime allowance of £1.8 m (protected) when the pension went into drawdown.

The pensioner has no other income, not yet taking state pension.

What are ' transitional reliefs' if a tax charge is required when would it be payable.

Thanks

zagfles

Is the pension (after the TFLS was taken out) now worth more than it was when it went into drawdown? If so there's the possibility of another LTA charge at age 75. Maybe that's what the 103% is referring to.

ognum

zagfles wrote: »

Is the pension (after the TFLS was taken out) now worth more than it was when it went into drawdown? If so there's the possibility of another LTA charge at age 75. Maybe that's what the 103% is referring to.

Thanks for your reply, it is not worth more now it is very very slightly less!

jamesd

Since the owner was under the transitional relief limit of 1.8 million by using LTA protection there should be no implications. But 103% means that there is a problem and the protected value can't have been used, so there are implications and possible charge deductions and money paid to HMRC that didn't need to be paid.

As HMRC says Information and administration: the member must provide information about any lifetime allowance protection they have. The scheme would then use that to calculate whether any charge is due and would normally automatically deduct that money and pay it to HMRC as it comes due. So it's likely that there have been deductions and payments to HMRC that will need to be unwound.

So initial contact with the firm would be to ask them if they knew about the protection and if not, to tell them about it and ask them to use the protection value and arrange any refunds that are due after correcting that. The fault would usually be on the part of the pension holder for not telling them about the protection, so being polite and understanding is good when making such contact.

The member should have been told how much was subject to the charge, how the tax was calculated and how much is due and whether the firm paid or intended to pay it out of the pension pot. The requirement is to do that within three months. The member should then ideally have noticed if the protected amount wasn't being used and told them about it, though better still would have been to do it as soon as the protection was obtained.

There is another LTA check at age 75, with the amount of increase in value over the original amount the value which counts for that. withdrawing money so the value is not higher is the best protection against that.

All of this can be unwound and corrected but don't be surprised if it takes a few months to get it all done.