LTA Question specific to me

nxdmsandkaskdjaqd

I am having difficulties understanding the Life Time Allowance. So based on the below could I receive some thoughts.

63 years old. SIPP pot size £500k. No other income. No other contributions being made. Will only draw pension at age 66 and that will be up to the 20% personal tax allowance (will pay no tax).

I could take 25% of the pension pot at 66 and reinvest in ISA’s if that is an option to reduce the LTA.

My plan at 66 is to receive the state pension, top this up from my SIPP up to my personal allowance, any other income required would be from ISA’s. I will use Uncrystallised funds pension lump sum method of taking money from the SIPP.

Just in case, I currently need about £30K per year on living expenses.

So, do I need to worry about LTA?

anselld

Given that the LTA is currently £1055k and increasing annually with CPI you would need very high level of growth of your £500k to get anywhere near worrying about that aspect.

Marcon

nxdmsandkaskdjaqd wrote: »

63 years old. SIPP pot size £500k.
My plan at 66 is to receive the state pension, top this up from my SIPP up to my personal allowance, any other income required would be from ISA’s. I will use Uncrystallised funds pension lump sum method of taking money from the SIPP.

Just in case, I currently need about £30K per year on living expenses.

As the previous post points out, the LTA is over £1m. Unless you expect your SIPP to double in value in the next few years, doesn't look as if you have any issue, so not quite sure why you are worrying.

nxdmsandkaskdjaqd

Marcon wrote: »

So not quite sure why you are worrying.

I didn't fully understand how LTA was calculated. I was thinking in 10/20 years time the pot might be over £1m and therefore applicable to LTA. It sounds like LTA is calculated at 66 and therefore will not have doubled in the next 3 years.

anselld

nxdmsandkaskdjaqd wrote: »

I didn't fully understand how LTA was calculated. I was thinking in 10/20 years time the pot might be over £1m and therefore applicable to LTA. It sounds like LTA is calculated at 66 and therefore will not have doubled in the next 3 years.

It is only calculated when you crystallise. You don't have to crystallise until 75.

So if you are using UFPLS only to draw only what you need then your remaining LTA is indexed with CPI and your uncrystallised funds are growing (hopefully) faster than CPI.

There is a remote possibility that you may still approach LTA before 75 in which case crystallise the remaining pot and draw down at least any growth in the crystallised funds until age 75.

nxdmsandkaskdjaqd

anselld wrote: »

It is only calculated when you crystallise. You don't have to crystallise until 75.

So if you are using UFPLS only to draw only what you need then your remaining LTA is indexed with CPI and your uncrystallised funds are growing (hopefully) faster than CPI.

There is a remote possibility that you may still approach LTA before 75 in which case crystallise the remaining pot and draw down at least any growth in the crystallised funds until age 75.

So have just done a quick basic calculation. £500k compounded at 7% would be £1.15M. So could be in trouble (if there are limited withdrawals).

Would withdrawing 25% now as a tax free lump sum help?

NoMore

Its intended the LTA will grow with inflation so achieving 7% return after inflation is very ambitious.

Usual advice is worry about the LTA when you get close to it. Not because you think you may break it in 10 years because of an assumed ambitious return on investment.

nxdmsandkaskdjaqd

Does taking the 25% tax free lump sum, say now, help in reducing the risk of reaching the LTA?

Albermarle

Does taking the 25% tax free lump sum, say now, help in reducing the risk of reaching the LTA?

It can help a little . The tax free lump sum will still be counted towards the LTA but any future growth of that money will be outside the LTA . However if the tax free lump sum is substantial then you have to think where you are going to invest it.
The normal advice on this forum is not to let theoretical/possible tax issues in the far future dominate your financial planning.

Thrugelmir

nxdmsandkaskdjaqd wrote: »

So have just done a quick basic calculation. £500k compounded at 7% would be £1.15M. So could be in trouble (if there are limited withdrawals).

If by some chance you happened to invest in the right company/sector and exceeded the LTA. Then I'd suggest paying the tax and be thankfull for your good fortune. As you'll still be left with more wealth than you ever imagined.

Given the long term market averages even with income reinvested. To achieve a 7% return above inflation (taking into account charges as well) is going to some achievement.

nxdmsandkaskdjaqd

Thank you, I have a clearer picture now. One more question. How does that tax situation work when you exceed the LTA threshold? Is everything withdrawn taxed at 25%, irrespective of your personal allowance?