Life time allowance and Tax free lump sum

FreedomFromDebt

Hi folks,

Im a bit confused when it comes to the 25% tax free lump sum and the life time allowance. Say I have a SIPP and at retirement (55 or 57) I have £10 million (figure used as an illustration).

Can I take £2.5 million tax free? (25%) Or does the LTA (~£1M) kick in
If I took the whole pot out in one go would I pay 55% then the remaining 45% is mine with no other tax to pay?

marlot

The PCLS is limited to 25% of the LTA, so just over £260k.

If the fund was over £1m in April 2016, then the individual can apply for individual protection - so getting a personal LTA of up to £1.25m. (and hence a higher tax tree PCLS.)

There was also protection in 2014 - at even higher levels.

Andrew31

marlot wrote: »

The PCLS is limited to 25% of the LTA, so just over £260k.

.

Not strictly true. The PCLS can be 25% of the fund, but the tax free element will be just over £260k.

Any additional PCLS will attract the lifetime allowance tax charge (55% i believe)

Andrew31

I Presume you dont have an LTA problem? if you do, give the real figures an I will tell you how much tax you will pay.

FreedomFromDebt

I have £3 million in my pension.

Is it best to take it all out in a lump sum?

(3M - (25%*1.073M (LTA))) * 45% + (25%*1.073M(LTA)) = 1.49M

£1.5 million, i.e. half
Or take it out in smaller drawdown's?

JoeCrystal

FreedomFromDebt wrote: »

I have £3 million in my pension.

Is it best to take it all out in a lump sum?

(3M - (25%*1.073M (LTA))) * 45% + (25%*1.073M(LTA)) = 1.49M

£1.5 million, i.e. half
Or take it out in smaller drawdown's?

How about paying for an IFA to answer your question? If you are dealing with this kind of money, it would be best to get professional advice about it. It is a nice problem to have, though.

ffacoffipawb

FreedomFromDebt wrote: »

I have £3 million in my pension.

Is it best to take it all out in a lump sum?

(3M - (25%*1.073M (LTA))) * 45% + (25%*1.073M(LTA)) = 1.49M

£1.5 million, i.e. half
Or take it out in smaller drawdown's?

The LTA is 1.075m from April, not 1.073m. It is currently 1.055m.

marlot

It's widely expected to be 1.075m, but I didn't think the statutory instrument to make it so had yet been passed. I'm expecting that it will be part of the upcoming budget. Happy to be corrected.

The regulations state that the previous Lifetime Allowance will be

(a) increased by the percentage increase in the index (CPI), and
(b) if the result is not a multiple of £100, rounded up to the nearest amount which is such a multiple.
This would make it £1,072,900.

But last year, the Government rounded it up to the nearest £5k. If they did that again, it would rise to £1.075m, as you say.

But who knows? They might even abolish it altogether!

marlot

FreedomFromDebt wrote: »

I have £3 million in my pension.

Is it best to take it all out in a lump sum?

(3M - (25%*1.073M (LTA))) * 45% + (25%*1.073M(LTA)) = 1.49M

£1.5 million, i.e. half
Or take it out in smaller drawdown's?

Was your pot above £1m on 5th April 2016?

If so, apply for protection and get an extra £44k tax free (assuming it was over £1.25m).

Mick70

The LTA should be reviewed as it penalIses DC pensions but rarely impacts DB pensions ? The two should be treat the same

Doglegger

Mick70 wrote: »

The LTA should be reviewed as it penalIses DC pensions but rarely impacts DB pensions ? The two should be treat the same

Are you still cashing out of your DB mate? If so then a bit strange complaining about the tax situation of one against the other!