Lifetime allowance and tax free lump sum

CameronRiley

Although most of my pension is held overseas, I will soon have about 5 years worth of a defined benefit pension held by two different UK schemes.  I also have a smallish SIPP, which I took out to offset higher tax band rates.  Each of the DB pensions has a figure attached to it which is its value for the purposes of calculating the lifetime allowance.  My question is, would this notional value be considered when calculating how much tax free lump I can take from my SIPP.  Could I take all of the SIPP as a tax free lump sum if it equals less than 25% of the total of the lifetime allowance?

TIA...Cam

eskbanker

No, you can only take up to 25% of the value of your SIPP tax-free, regardless of other pensions.

jamesd

Yes, the notional value is important in considering how much you can take from any pension you have. You're only entitled to tax free cash until the total value of the pensions you take benefits from reaches the lifetime allowance. After that you're not entitled to 25% tax free on the portion over it.

Each pension has its lifetime allowance use calculated and added to others already taken at the time you crystallise (take benefits) from all or part of it (only using the part crystallised). So long as the lifetime allowance isn't exceeded you can take 25% tax free.

Lifetime allowance value for DB is 20 times the income plus any tax free lump sum. For DC it's whatever the value being crystallised is.

You can't take more than 25% from one pension just because you took less than 25% from another.