What happens to this money

ognum

SIPP fully crystallised at lifetime allowance, lump sum taken. Out of the blue a letter arrives via the DWP from a pension provider saying that they have a pension sum and have not got an address to provide information.

This monies was completely unknown, the pension pot was transferred to another provider 20 years ago and as far as the recipient is concerned that pension was closed and there has been no correspondence for 20 years.

Suddenly another £40k pension pot turns up, what are the tax implications and the implications for breaching the lifetime allowance?

jamesd

You haven't breached the lifetime allowance yet but since it's currently calculated as a percentage of the LTA used and you've used 100% it won't matter even if it gets increased because you'll still have used 100%. So under current rules if you crystallise it you'll pay the LTA charge.

It seems unlikely that you have any need for the £40k so you might choose to just leave it uncrystallised and hope for a change in the rules before you reach 75. Or for the 75 itself to be increased. Meanwhile if you die it's inheritable tax free before 75 or at recipients' rate after, but in both of those cases the lifetime allowance charge will be applied first, so it won't dodge that charge. You might well get lucky and dodge by just waiting.

zagfles

jamesd wrote: »

You haven't breached the lifetime allowance yet but since it's currently calculated as a percentage of the LTA used and you've used 100% it won't matter even if it gets increased because you'll still have used 100%. So under current rules if you crystallise it you'll pay the LTA charge.

It seems unlikely that you have any need for the £40k so you might choose to just leave it uncrystallised and hope for a change in the rules before you reach 75. Or for the 75 itself to be increased. Meanwhile if you die it's inheritable tax free before 75 or at recipients' rate after. You might well get lucky and dodge just waiting.

There'll be an LTA charge (BCE 5C or 7).

ognum

zagfles wrote: »

There'll be an LTA charge (BCE 5C or 7).

Sorry but what does that mean?

xylophone

See

http://www.pruadviser.co.uk/content/knowledge/technical-centre/lifetime_allowance/

jamesd

zagfile, xylophone, thanks, yes, the death or age 75 will trigger the LTA charge unless the rules have been changed before then.

ognum wrote: »

Sorry but what does that mean?

If you die the lifetime allowance charge is made before the money is passed to the beneficiaries, as it is if you just reach age 75. So if the rules don't get changed before those events you wouldn't have succeeded in dodging the charge by waiting.