LTA test at 75

shortseller09

Having read several threads around LTA, the general consensus seems to be to maximize growth outside the pension to avoid the 25% tax charge at 75 (I wouldn’t be taking any excess as a lump sum). 

I’m 57, have used approx. 94% of LTA, saving 6% for small DB which kicks in at 65 (PCLS used for property). SIPP now approx. £850k. Currently higher rate taxpayer, looking to retire at 62 when I will draw down and stay within basic rate band. I would also prefer to keep the funds inside the pension for IHT purposes. My aim is to maximise contributions until 62 taking advantage of the 40% relief and then draw down the maximum within the basic rate tax band (I have used 50k every year for simplicity in my spreadsheet).

My calculations conclude that under any scenario (contribution range 6k to 24k net) I am better off adding to the SIPP and taking the 25% LTA hit rather than investing outside, and the higher the investment growth the better off I am. This also does not account for investing some of the 50k p.a. drawdown. Am I missing something? 

Albermarle

For a 40% taxpayer , contributing to a SIPP that was going to be over the LTA , will result in a zero sum game
£60 in means £100 in pension - when you take it out 25% charge = £75 than  usual 20% income tax = £60 left 
If you get employer contributions then it is a gain  , depending on what % they are.

jamesd

You seem not to have recognised that both income tax and lifetime allowance will be payable: LTA charge as you crystallise above LTA and income tax on 100% withdrawn because there's no tax free part above the LTA.

Giving while alive, perhaps pension contributions for beneficiaries, might be a better move. 

cfw1994

Must admit I'm in a similar position (a fortunate one, to be sure!)
Having to leave just over 20% for some DB schemes not kicking in for another 5 and 10 years, but I have crystallised most of the rest: reinvested outside (ISAs as well as paying off the mortgage)....I continue to invest, but only to my matched company contribution: likelihood being that some (most) of this will attract LTA in the future. 
Planning here to draw down the growth, but not for a year or two..... 
It certainly gets tricky when accounting for future DB schemes.

cfw1994

jamesd said:

You seem not to have recognised that both income tax and lifetime allowance will be payable: LTA charge as you crystallise above LTA and income tax on 100% withdrawn because there's no tax free part above the LTA.

Giving while alive, perhaps pension contributions for beneficiaries, might be a better move. 

I read the OP as having already taken the 25% TFLS ("PCLS used for property"), and accepting that once over the LTA, all monies withdrawn would be subject to tax (as they say, to the basic rate limit, ~£50k).
So the whole thing is crystallised - I would assume all new funds put in will therefore essentially be over the LTA and subject to the 45% described by Albemarle?
Or have I missed something, and are you suggesting that once over the LTA, you lose out on the nil rate band to £12,500 as well?
As also said, if company is contributing, then you are gaining a little with that....which is pretty well where I'm at.

Shortseller09 - I assume the goal is to utilise all the growth of the now-crystallised portion before 75, such that only the extra you're putting in from now is measured?

jamesd

cfw1994 said:

I would assume all new funds put in will therefore essentially be over the LTA and subject to the 45% described by Albemarle?

It's about maximising contributions between now 58 and 62 but with the wrinkle that inheritance is the purpose so it may be LTA charge at 75 or death, whichever is sooner. But it's new money that would be entitled to a PCLS if not over the lifetime allowance.

I'm not much of a fan. I prefer the alternative of giving while alive.

shortseller09

You seem not to have recognised that both income tax and lifetime allowance will be payable: LTA charge as you crystallise above LTA and income tax on 100% withdrawn because there's no tax free part above the LTA.

Schoolboy error, even though I was aware of the income tax, I hadn't applied it to the spreadsheet post 75, no idea why...apologies, and thanks for all the responses.