Life time allowance and Tax free lump sum

zagfles

Andrew31 wrote: »

Wow you have £3mil pounds in your pension yet you have been struggling with unsecured debt? How much is your actual debt?

for the £3mil, lets call the LTA £1 for ease. You can get £250k PCLS Tax free

Yes

and £500PCLS Taxable at 55% so thats £525k.

That's not PCLS. PCLS is limited to 25% of amount crystallising or 25% of remaining LTA, whichever is lower. Once over the LTA you can take as much as you want out as a lump sum subject to the 55% tax charge.

Income will be £750k Taxable lets imagine that is taxed at 45% so £412k in the bank plus £1.5mil with an LTA charge of 25% plus income tax at probably 45% so £506k

Why would anyone pay 25% LTA charge and then 45% income tax?? It makes no sense. They can just pay 55% LTA lump sum charge, which works out less, and take it all out as a lump sum. Or they could spread it over a number of years and avoid the 45% tax rate, instead paying 25% LTA and 40% (or less) income tax which combines to 55% (or less).

FreedomFromDebt

Thanks for all the replies. I don't have £3M now but based on when I retire (2032) I could have. Im guessing the LTA will be much higher then, or even abolished? Seems impossible to determine what your pension will be worth so far ahead.

jamesd

FreedomFromDebt said: based on when I retire (2032)

If that is after age 55 you may be able to reduce the eventual bill by taking the PCLS then.

jamesd

Andrew31 said:

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)

Wrong, marlot was right. The PCLS is strictly limited to 25% of the available lifetime allowance. Anything above that isn't a PCLS and is subject to one of the lifetime allowance charge rates. Except small pot rule sums.