Plotting estimated LTA Tax Charge in My Retireeasy LifePlan

caldejud

Hi all
Following various threads lately there has been a lot of chat re the LTA tax charge and my OH is likely to be a candidate to pay it or maybe I will at some point?!.

We use Retireeasy for our cashflow planning and we now want to factor in this charge. I have set up the first scenario and entered an estimated a single tax charge of 25% of the excess fund when he reaches age 75 and I think this is fine.

My question is: if my OH dies before age 75 and I inherit what remains of his SIPP I think I need to work out how much of his Sipp fund he has taken and then work out when I am likely to withdraw the amount above the LTA – I will likely take this as income so each time I take excess income I believe there will be a 25% LTA tax charge until I reach age 75 when an automatic LTA charge of 25% will then be deducted by the provider. Is this correct as I want to plan in this series of tax charges in my lifeplan.

Grateful for any help

Tx

Malthusian

If your OH dies then his whole uncrystallised fund is crystallised at that point and tested against the Lifetime Allowance.

There is no series of tax charges on an inherited SIPP - the whole lot is tested against the deceased's Lifetime Allowance on death, and is not tested against the beneficiary's Lifetime Allowance.

Any funds that he already crystallised would not be tested against the Lifetime Allowance - they have already been tested at the point of crystallisation.

If you really do have two pension funds which are both in danger of breaching the Lifetime Allowance then you should really see an independent financial adviser. The fees they would charge could be trivial next to the tax saved. Minimising the impact of the Lifetime Allowance requires a full picture of your finances and review on an ongoing basis, which means it is not a job for random people on the Internet.

zagfles

Malthusian wrote: »

If your OH dies then his whole uncrystallised fund is crystallised at that point and tested against the Lifetime Allowance.

There is no series of tax charges on an inherited SIPP - the whole lot is tested against the deceased's Lifetime Allowance on death,

Completely wrong. There is no LTA test on death, the LTA is tested when benefits are taken.

It is even possible to avoid the LTA test completely, by not touching the funds for 2 years. However this comes at the expense of losing the tax free status of drawdowns from the fund.

and is not tested against the beneficiary's Lifetime Allowance.

Any funds that he already crystallised would not be tested against the Lifetime Allowance - they have already been tested at the point of crystallisation.

These bits are correct.

If you really do have two pension funds which are both in danger of breaching the Lifetime Allowance then you should really see an independent financial adviser. The fees they would charge could be trivial next to the tax saved. Minimising the impact of the Lifetime Allowance requires a full picture of your finances and review on an ongoing basis, which means it is not a job for random people on the Internet.

As long at the financial adviser understands the LTA issues. As we've seen here, both directly and indirectly, some don't.

Malthusian

zagfles wrote: »

Completely wrong. There is no LTA test on death, the LTA is tested when benefits are taken.

It is a reasonable assumption that if the OP's husband dies then she will take his benefits, especially as she has told us her intention would be to inherit the death benefits as a flexi-access drawdown plan.

If she did not touch his benefits for two years any payment would be treated as an unauthorised payment and subject to tax at 40 - 55% (whereas if his fund exceeds the lifetime allowance the excess only will be taxed at 25% if taken as a nominee drawdown plan), so why she would want to do that I have no idea.

Neglecting to mention an irrelevant detail is not the same thing as being "completely wrong".

zagfles

Malthusian wrote: »

It is a reasonable assumption that if the OP's husband dies then she will take his benefits, especially as she has told us her intention would be to inherit the death benefits as a flexi-access drawdown plan.

Yes, but she doesn't need to take it all, and she doesn't need to take all at the same time. She could designate enough to stay within her husband's LTA and delay designating any excess above the LTA.

If she did not touch his benefits for two years any payment would be treated as an unauthorised payment and subject to tax at 40 - 55%

Completely wrong! Again . It would be taxed as income at her marginal rate. It's not "unauthorised" at all.

(whereas if his fund exceeds the lifetime allowance the excess only will be taxed at 25% if taken as a nominee drawdown plan), so why she would want to do that I have no idea.

Have a read of this, especially the case study at the end:

https://www.investcentre.co.uk/sites/default/files/AJBIC_Death_Benefit_Rules.pdf

Neglecting to mention an irrelevant detail is not the same thing as being "completely wrong".

You wrote "There is no series of tax charges on an inherited SIPP". That is wrong, see above. You wrote "the whole lot is tested against the deceased's Lifetime Allowance on death,". That is also wrong. Those aren't irrelevant details. They are very relevant to someone who inherits a SIPP which breaches the LTA.

Malthusian

Zagfles, you are completely right on both counts, and I apologise. I should have checked the facts, especially before my second post.

The implications for someone who inherits a SIPP above the lifetime allowance had completely escaped me and are indeed very significant.

caldejud

Thank you for your responses guys. I have made some changes to my Lifeplan entries. If hubby pops his clogs before me then I will not need the income so we are thinking about either me taking the cash less any LTA tax charge or changing the nomination on his SIPP.