Incresed investment over LTA

CRAIGSVILLE

Hi,


Does anyone know what the tax implications are on a pension investment after taking some/part of the 25% TFLS, and it eventually grows to above the LTA of £1055000 ??
e.g. £1M pot , take £100000 TFLS , and the £900000 grows to £1.2 M.


And also, does the TFLS grow along with the increased investment if I've already taken some out?
e.g. If the un-crystallised pension investment grows to £1M again, can I take another TFLS of £250K to take it to the original 25% TFLS without dipping into the investment?


Sorry if it sounds a bit confusing


Thanks


Craig

tibbles209

Yes you can take 25% tax-free of any uncrystallised portion of the pension, and you will indeed get 25% of the value at the time of crystallisation of that part of your pension. As you crystallise parts of your pension, the value will be cumulatively tested against the lifetime allowance, and once the value exceeds the 1.055mil lifetime allowance you will then be subject to additional tax charges.

There is a further test against the lifetime allowance at age 75.
If you have a pension with a value just shy of the LTA, it may make sense from a tax point of view to crystallise your entire pension (perhaps staggered in parts over consecutive tax years for ISA allowance reasons) before it exceeds the lifetime allowance, and reinvest your tax free lump sum in S&S ISAs, and then attempt to tax efficiently draw down as much of your remaining crystallised pension's growth as possible in the run up to age 75 to try to avoid the value growing above the LTA. Beyond age 75 there are no further LTA tests as far as I am aware, so you should be able to allow your remaining crystallised pension to grow freely thereafter

cjking

£1000K pension, take £100K lump sum, means 300K has gone to drawdown, and you've crystallised £400K in total.

For simplicity pretend your LTA was £1000K when this happened. You've used up 40% of your LTA.

If the 900K becomes 1200K, that means the 300K in drawdown has become 400K and the 600K that was uncrystallised has become 800K.

Assume you take the next lump sum at a time when the full LTA has risen to 1200K. Then your remaining LTA is 60% * 1200K = 720K

The maximum further TFLS is the smaller of 25%*800K=200K and 25% * 60% * 1200K=180K. So 180K.

Assuming the rest of your funds go into drawdown, you will pay a charge for exceeding your LTA of (800K-720K)*25% = 20K. 600K will join the other 400K in drawdown for a total of 1000K in drawdown.

At age 75 you may pay a second LTA charge on any drawdowm balance in excess of (300K+600K)=900K total funds transferred to drawdown.

It's late and my brain is foggy, so I hope that's all correct. I'm sure someone will point out if not.

CRAIGSVILLE

Thanks for the informative replies guys.
It's made things a lot clearer now :-)