LTA - is my understanding correc ?

dn197sh

Hi,

I am in the fortunate position that my SIPP has grown rather faster than I anticipated and the LTA has become an issue.

My pot value is around £1.2M and I have no LTA protection.

Am I correct in saying that I can crystalise the lot and hence have;-

A Tax free lump sum of 25% of £1.07m = £268,275

The balance of my LTA = £1.07m - £268,275 = £804,825 into a drawdown fund.

LTA Tax of 25% of above LTA amount = 25% of (£1.2m-£1.07m) = £31,725 paid direct from pension fund.

The balance from the sum above the LTA after the 25% LTA tax would be paid into my drawdown account = 75% of (£1.2m-£1.07m) = £95,175

Thus I would end up with a tax free sum of £268,275 and a total of £804,825 + £95,175 = £900,000 in a drawdown account.

If I understand it correctly, their would be no further LTA assessment at 75 yrs of age as I would be left with no uncrystalised funds.

I hope that I have got this right, but if not, it would be better to know now.....

Thanks for any advice.

Regards

D

EdSwippet

dn197sh said:

If I understand it correctly, their would be no further LTA assessment at 75 yrs of age as I would be left with no uncrystalised funds.

All correct, except for this part. When you reach age 75, there is another LTA test on the value of the crystallised drawdown account. Any amount above that originally moved into drawdown is again subject to a 25% LTA penalty, BCE5a. HMRC documents on this are messy, but this (non-HMRC) example shows how it can work:

https://www.investcentre.co.uk/sites/default/files/AJBIC_Lifetime_Allowance_Adviser_Guide.pdf

Note that if you withdraw all the nominal gain from the drawdown element between crystallisation and age 75, so that the value of drawdown at age 75 is no higher than the amounts crystallised into drawdown earlier, you then avoid a BCE5a LTA charge at age 75 even with no remaining LTA.

Once past this age 75 LTA test, there are no further ones.

One final thought. If you have made no pension contributions since April 2016, you could still qualify for FP2016. Maybe too late for that now, but worth mentioning just in case.

dn197sh

EdSwippet,

Thanks for your help - the point about another assessment at 75 is not uniformly understood in the industry as I have found different explanations, never-the-less I expect to extract as much of the investment gains as possible so it probably does not matter for me - unless we get rip-roaring inflation.

Unfortunately, I have made contributions since April 2016, the £ falling in value has increased the £ value of foreign investments more rapdily than I expected. Never mind.

I will be in a good cash position when I take my 25% tax free, so I will probably use the opportunity offered by VCTs to take back the tax that HMRC will be taking from my pension. I will be doing all this in 21/22 do it gives me 12 months to get my ducks in a row and get my cash back from the chancellor.

Thanks again for your help.

D

Jeremy535897

dn197sh said:

EdSwippet,

Thanks for your help - the point about another assessment at 75 is not uniformly understood in the industry as I have found different explanations, never-the-less I expect to extract as much of the investment gains as possible so it probably does not matter for me - unless we get rip-roaring inflation.

Unfortunately, I have made contributions since April 2016, the £ falling in value has increased the £ value of foreign investments more rapdily than I expected. Never mind.

I will be in a good cash position when I take my 25% tax free, so I will probably use the opportunity offered by VCTs to take back the tax that HMRC will be taking from my pension. I will be doing all this in 21/22 do it gives me 12 months to get my ducks in a row and get my cash back from the chancellor.

Thanks again for your help.

D

There are those who think that pensions may be the first port of call for tax increases, so you do risk a change in legislation by waiting.

dn197sh

 I have thought the same, but have convinced myself that they are more likely to (1) have a go at money going in rather than money going out and (2) changes are more likely for tax year 21/22 to allow for implementation time.

Jeremy535897

dn197sh said:

 I have thought the same, but have convinced myself that they are more likely to (1) have a go at money going in rather than money going out and (2) changes are more likely for tax year 21/22 to allow for implementation time.

I think your dates must be wrong, as you said you plan to do this in 2021/22.

dn197sh

Jeremy535897 said:

dn197sh said:

 I have thought the same, but have convinced myself that they are more likely to (1) have a go at money going in rather than money going out and (2) changes are more likely for tax year 21/22 to allow for implementation time.

I think your dates must be wrong, as you said you plan to do this in 2021/22.

Well spotted.

I am obviously drunk. I meant to say that I assume changes will take place 22/23 to give time for implementation.

Ta

D

Jeremy535897

dn197sh said:

Jeremy535897 said:

dn197sh said:

 I have thought the same, but have convinced myself that they are more likely to (1) have a go at money going in rather than money going out and (2) changes are more likely for tax year 21/22 to allow for implementation time.

I think your dates must be wrong, as you said you plan to do this in 2021/22.

Well spotted.

I am obviously drunk. I meant to say that I assume changes will take place 22/23 to give time for implementation.

Ta

D

It's your decision, but one thing I cannot see is the tax liability going down, so apart from gaining an extra year to pay, why delay?

dn197sh

Jeremy535897 said:

dn197sh said:

Jeremy535897 said:

dn197sh said:

 I have thought the same, but have convinced myself that they are more likely to (1) have a go at money going in rather than money going out and (2) changes are more likely for tax year 21/22 to allow for implementation time.

I think your dates must be wrong, as you said you plan to do this in 2021/22.

Well spotted.

I am obviously drunk. I meant to say that I assume changes will take place 22/23 to give time for implementation.

Ta

D

It's your decision, but one thing I cannot see is the tax liability going down, so apart from gaining an extra year to pay, why delay?

I don't tun 55 until January. I have another FSAVC pension to transfer into my main pot after I turn 55. I have the form filling to do to take my 25% tax free lump sum and I have more form filling in and cheque paying in to open a few VCTs.

Presumably the VCTs need to be paid up in he same tax year that I take the pension in order to offset one against the other ?

Jeremy535897

It's not something I know about, but see here:
https://www.moneyadviceservice.org.uk/en/articles/venture-capital-trusts