Life time allowance - what do you do when you approach this?

Albermarle · 2 January 2021 at 5:14PM

Overall....the LTA is a lovely problem to have, but can also act as a disincentive to continue working!!

Yes one of those luxury problems that many people wish they had

garmeg · 2 January 2021 at 5:15PM

Maybe one for @dunstonh.

Quick question about the LTA Charge. Assuming that one has crystallised exactly 100% LTA in the past then any further crystallisations suffer this charge.

Now, assuming I have exactly £200,000 uncrystallised funds left in a SIPP with, say, Hargreaves Lansdown (HL). When I crystallise the SIPP, HL will pay the £50,000 LTA charge to HMRC (because I will tell them I have no LTA left) and move the rest into drawdown.

Question is, do I need to complete a tax return because an LTA charge is paid on my behalf by HL? Or is this only necessary if you actually pay the LTA charge yourself?

I would be using the £150,000 to buy a level annuity as a bond proxy, leaving the main SIPP invested in equities.

Thanks

Albermarle · 2 January 2021 at 5:20PM

There was another thread were it was suggested that HMRC do not monitor your LTA position ( not obviously anyway ) so to add to the above question , what happens if you 'forget' to tell HL you are at 100% LTA , or in some cases the client may not be even aware of the issue, or understand it properly?

cfw1994 · 2 January 2021 at 5:29PM

Albermarle said:

There was another thread were it was suggested that HMRC do not monitor your LTA position ( not obviously anyway ) so to add to the above question , what happens if you 'forget' to tell HL you are at 100% LTA , or in some cases the client may not be even aware of the issue, or understand it properly?

I'm convinced you could very easily just 'get away with it' - not even sure how you inform them!
(not suggesting anyone tries, mind - just that it really isn't clear *how* it is dealt with!)

garmeg · 2 January 2021 at 5:39PM

Albermarle said:

There was another thread were it was suggested that HMRC do not monitor your LTA position ( not obviously anyway ) so to add to the above question , what happens if you 'forget' to tell HL you are at 100% LTA , or in some cases the client may not be even aware of the issue, or understand it properly?

I dont think they do advise HMRC in general. In a past employment with an insurer I have seen letters sent to policyholders that take benefits in the form of a PCLS and a (GAR) annuity. It tells them hiw much LTA has been used. However, nowhere in the policyholder record is there a letter / schedule sent to HMRC advising them of the LTA used. They would be aware of the annuity via RTI reporting as it is a taxable benefit.

Of course a bulk submission may be made periodically to HMRC of LTA usage by all retirees, but I have never seen such a document.

Cus · 2 January 2021 at 6:36PM

Albermarle said:

Having read various items about LTA , there seems to be no one solution that applies to everybody . One body of thought is not to worry about it too much, and if you have to pay some extra tax then such is life . If you have over a Million in your Sipp , helped by large doses of tax relief , then paying some back is probably not going to break the bank . As Zagfles says it might well be tax neutral anyway.
Personally I would consider changing the pension investment strategy. With a 100% equities you have high risk of a large drop and of potential high growth . Neither of which is a good outcome as you are taking risk without the corresponding upside, as high growth will be penalised by the LTA.

What sort of time horizon would you think this plan is tuned for? I mean, if you don't expect to touch it for say 10 years then would it be short sighted to go defensive now?

Albermarle · 2 January 2021 at 6:44PM

Cus said:

Albermarle said:

Having read various items about LTA , there seems to be no one solution that applies to everybody . One body of thought is not to worry about it too much, and if you have to pay some extra tax then such is life . If you have over a Million in your Sipp , helped by large doses of tax relief , then paying some back is probably not going to break the bank . As Zagfles says it might well be tax neutral anyway.
Personally I would consider changing the pension investment strategy. With a 100% equities you have high risk of a large drop and of potential high growth . Neither of which is a good outcome as you are taking risk without the corresponding upside, as high growth will be penalised by the LTA.

What sort of time horizon would you think this plan is tuned for? I mean, if you don't expect to touch it for say 10 years then would it be short sighted to go defensive now?

I am not an expert , it is only a suggestion that seems to make sense to me .
There seems to be a lot of trade offs when it comes to LTA strategies.
If the investments stay with 100% equities then most likely they will grow more than with a more defensive strategy.
If you are over the LTA , then it is an arguable point if this is a good or bad outcome and depends also on your overall personal situation and personality.