LTA exceedance - 55% or higher tax on drawdown?

Mutton_Geoff

A hypothetical question. If I have funds in a SIPP that are in excess of my LTA, my choice looks like a 25% tax penalty then tax at marginal rate or a straight 55% tax for lump sum withdrawal. If the amount was drawn in a year where the amount would cause me to exceed £100k income, then my marginal rate (temporarily between £100k and £125k) would effectively be 60% due to the loss of personal allowance.

To draw an income from the SIPP would therefore cost me 70% tax (£100 less 25% LTA = £75 less 60% tax = £30) as opposed to a straight 55% LTA tax leaving me with £45 instead of just £30. Is such a method to drawdown via lump sums feasible to avoid loss of personal allowance?

Malthusian

Makes sense to me. You would take the benefits as a "lifetime allowance excess lump sum".

Do you need to draw the excess in the first place? It never hurts to look at what the other options are.

TVAS

You don't need to take the excess lump sum you can defer it. Tax is only payable when you take it. I have administered these payments and most people take a lump sum so 55% for the reasons you have clearly stated above.