Lifetime allowance at 75

Pat38493

Hi - am I right in thinking that at age 75, my LTA would be assessed against everything that hasn’t already been calculated including all uncrystalised amounts?

So for example if I reach 75 with £1m of uncrystalised pension, I will be charged £250000 in tax?

Also - is it correct that after 75, there is no more LTA calculation so if your pension continued to grow after that there will be no more LTA tax charges?

Albermarle

So for example if I reach 75 with £1m of uncrystalised pension, I will be charged £250000 in tax?

It would depend on how much LTA you had already used up . If it was already 100% than yes you would be charged £250K .

Also any growth in crystallised funds since they were crystallised would be charged . (You can easily prevent this by withdrawing any growth before you reach 75)

Also - is it correct that after 75, there is no more LTA calculation so if your pension continued to grow after that there will be no more LTA tax charges?

Correct

Pat38493

Albermarle said:

So for example if I reach 75 with £1m of uncrystalised pension, I will be charged £250000 in tax?

It would depend on how much LTA you had already used up . If it was already 100% than yes you would be charged £250K .

Also any growth in crystallised funds since they were crystallised would be charged . (You can easily prevent this by withdrawing any growth before you reach 75)

Also - is it correct that after 75, there is no more LTA calculation so if your pension continued to grow after that there will be no more LTA tax charges?

Correct

Ok so if I had used 50% of my LTA, I would have 50% of the current LTA left, so I would deduct that from the current balance and then would have to pay 25% of the result?

Albermarle

Yes it would be One Million minus 50% of the LTA at that time , that you would have to pay 25% tax on . Under current rules, which might change .

Mick70

i'm still a bit unclear on this myself, sorry for another question

say pot is £1.5m

come 75 have used £0.5m ,but the remaining £1m has grown to say £1.2m  ,  what is the LTA charge then ?

EdSwippet

Mick70 said:

i'm still a bit unclear on this myself, sorry for another question ...

Does this worked example clarify things?

Lifetime allowance at age 75 case study - Royal London

Albermarle

Mick70 said:

i'm still a bit unclear on this myself, sorry for another question

say pot is £1.5m

come 75 have used £0.5m ,but the remaining £1m has grown to say £1.2m  ,  what is the LTA charge then ?

You will have to explain your question in more detail . Is the £1.5M crystallised  and you have taken £0.5M from it , leaving £1M crystallised?
Or do you mean you have crystallised £0.5M and the uncrystallised £1m has grown.

Just saying you have 'used it' is not enough .

Mick70

Albermarle said:

Mick70 said:

i'm still a bit unclear on this myself, sorry for another question

say pot is £1.5m

come 75 have used £0.5m ,but the remaining £1m has grown to say £1.2m  ,  what is the LTA charge then ?

You will have to explain your question in more detail . Is the £1.5M crystallised  and you have taken £0.5M from it , leaving £1M crystallised?
Or do you mean you have crystallised £0.5M and the uncrystallised £1m has grown.

Just saying you have 'used it' is not enough .

I think what i mean is , have crystallised £0.5m  and the untouched £1m has grown 

Albermarle

So lets say you crystallised the £0.5M today , then you will use £500K/£1,073K X 100 =46.5% 

Then whenever you crystallise the £1M + growth ( or when you reach 75) , this will be measured against the LTA at the time .

Lets say it has grown to £1.2 M and LTa has increased to £1.4 Million , then you will use £1200K/£1400K X 100 = 86%.

So you will pay LTA on £1.4 million on 32.5 % as 53.5% and 86% = 132.5% .

Notepad_Phil

Albermarle said:

So lets say you crystallised the £0.5M today , then you will use £500K/£1,073K X 100 =46.5% 

Then whenever you crystallise the £1M + growth ( or when you reach 75) , this will be measured against the LTA at the time .

Lets say it has grown to £1.2 M and LTa has increased to £1.4 Million , then you will use £1200K/£1400K X 100 = 86%.

So you will pay LTA on £1.4 million on 32.5 % as 53.5% and 86% = 132.5% .

And if you've failed to follow Albermarle's earlier note about withdrawing any growth from the crystallised pot then there's a further impact on you. E.g. if the amount put into drawdown (£375k after tfls if you've crystallised £0.5m)) has grown by £200k then there would be an additional £200k/£1400k x 100 = 14.28% to be added.