Crystallisation calculation

Barry_Bear

A SIPP has total value £600,000. You start Flexi Access Drawdown and crystallise £200,000. You withdraw 25% £50,000 tax free, leave the taxable £75,000 invested.
You now have a remaining SIPP value £550,000 (600k - 50k) of which £150,000 (200k - 50k) is crystallised and £400,000 (600k - 200k) is crystallised. You have used 18.6% (200/1073) of your Lifetime Allowance.

Correct?

Assuming LTA remains 1.073m. Some time later your SIPP has grown from £550,000 to £605,000 (10% increase). The crystallised £150,000 is now £165,000 and uncrystallised £400,000 is now £440,000. You now withdraw £105,000 taxable income from the crystallised SIPP. The SIPP is now £500,000 (605k - 105k), and is £60,000 (165k - 105k) crystallised and £440,000 uncrystallised.

Correct so far?

The SIPP grows 10% to £550,000, £66,000 crystallised, £484,000 uncrystallised. You do your second Flexi Access Drawdown, this time you crystallise £100,000 taking out £50,000 as £25,000 tax free and £25,000 taxable income, and leaving £50,000 of the crystallised sum invested. You now have a SIPP value of £500,000 (550k - £25k+25k), of which £116,000 is crystallised (66k + 50k) and £384,000 uncrystallised (484k - 100k).

Still all correct?

What is the correct calculation to calculate the total LTA you have used to date as at the second crystallisation (£100,000) and the amount of LTA remaining?

QrizB

Barry_Bear said:

What is the correct calculation to calculate the total LTA you have used to date as at the second crystallisation (£100,000) and the amount of LTA remaining?

200/1073 + 100/1073, ie. 300/1073. Remaining is £773k (or 773/1073, if you prefer).

NoMore

The only things you need to calculate the LTA used and remaining is the amount crystallised and the LTA limit at the time you crystallise, plus all the previous percentage amounts for previous crystallisations. 

So at crystallisation its amount crystallised/ prevailing LTA *100 to get a percentage.

Then for remaining is 100% minus (sum of all crystallisation percentages to date) * prevailing LTA

Barry_Bear

So the first crystallisation is 18.6% (200/1073). The second would be (100/1073) 9.3%. So total to date 300/1073 = 28%.

The SIPP value is £500,000
£116,000 is crystallised
£384,000 is uncrystallised

What would happen if your SIPP value increases 10% and the Lifetime Allowance increased from 1.073m to 1.2m by the time you made another £100,000 crystallisation as follows:

SIPP value up 10% £550,000
£127,600 is crystallised
£422,400 uncrystallised

You withdraw £100,000 as £25,000 tax free and £25,000 taxable, leaving £50,000 crystallised invested. So you have:

SIPP value £500,000 (550k - 50k)
£177,600 is crystallised (127,600 + 50k)
£322,400 uncrystallised (422,400 - 100k) 

The first 2 crystallisations used 28% of the LTA (300/1073). The third crystallisation is £100,000, and the new LTA is £1.2m.

So the third crystallisation uses 8.33% of the new LTA (100/1200). How much of the LTA has now been used:

a) 36.33% (28% previous using 1.073m + 8.33% using 1.2m)
or
b) 33.33% (400/1200 - £300,000 previous crystallisations + £100,000 latest crystallisation / new LTA 1.2m)

QrizB

The answer is a.

NoMore

Barry_Bear said:

So the first crystallisation is 18.6% (200/1073). The second would be (100/1073) 9.3%. So total to date 300/1073 = 28%.

the Lifetime Allowance increased from 1.073m to 1.2m by the time you made another £100,000 crystallisation 

The first 2 crystallisations used 28% of the LTA (300/1073). The third crystallisation is £100,000, and the new LTA is £1.2m.

So the third crystallisation uses 8.33% of the new LTA (100/1200). How much of the LTA has now been used:

a) 36.33% (28% previous using 1.073m + 8.33% using 1.2m)
or
b) 33.33% (400/1200 - £300,000 previous crystallisations + £100,000 latest crystallisation / new LTA 1.2m)

Took out all the extraneous stuff that doesn't matter, and the answer is a) , you work with the previous percentages not amounts.

Barry_Bear

Thanks all.

How does it work when you are getting closer to the LTA? Assuming the LTA is as now £1.073m.

SIPP £1m
£500,000 crystallised
£500,000 uncrystallised
You have previously used 40% of the LTA.

You crystallise and withdraw £100,000 (9.3% LTA) 
£900,000 SIPP
£500,000 crystallised
£400,000 uncrystallised  
You have now used 49.3% of the LTA. 

Then later your SIPP increases by 50% 
£1.35m SIPP
£750,000 crystallised
£600,000 uncrystallised

a) If you crystallise a further £100,000 (9.3% LTA) are you still within the LTA (49.3% + 9.3% = 58.6%)?

b) Or have you breached the LTA because at the point of crystallisation your SIPP had a value of £1.35m which is over the £1.073m LTA? 

NoMore

Barry_Bear said:

Thanks all.

How does it work when you are getting closer to the LTA? Assuming the LTA is as now £1.073m.

£500,000 crystallised

You have previously used 40% of the LTA.

You crystallise and withdraw £100,000 (9.3% LTA) 

You have now used 49.3% of the LTA. 


you crystallise a further £100,000 (9.3% LTA) are you still within the LTA (49.3% + 9.3% = 58.6%)?

Yes, again, I took out all the stuff that doesn't matter for working out your LTA usage

Barry_Bear

NoMore said:

Barry_Bear said:

Thanks all.

How does it work when you are getting closer to the LTA? Assuming the LTA is as now £1.073m.

£500,000 crystallised

You have previously used 40% of the LTA.

You crystallise and withdraw £100,000 (9.3% LTA) 

You have now used 49.3% of the LTA. 


you crystallise a further £100,000 (9.3% LTA) are you still within the LTA (49.3% + 9.3% = 58.6%)?

Yes, again, I took out all the stuff that doesn't matter for working out your LTA usage

OK thanks. I know too much stuff again - trying to see things in the context of crystallised/uncrystallised pots!

So the message is the only thing that matters is the percentage of LTA that has been cumulatively crystallised over time. The SIPP itself can be valued at £5m, but you won't exceed the LTA provided your cumulative percentage LTA crystallisations never exceed 100%. 

Say you've used 58.6% of the LTA, the SIPP is £1.5m, £1.0 m crystallised, £500,000 uncrystallised. The LTA is £1.073m.

If you've used 58.6% of the LTA does it follow that you have 41.4% of the current LTA available therefore £444,222 unused LTA and you can:
- withdraw income from the £1m crystallised at your marginal tax rate
- crystallise a further £444,222 without paying the excess LTA tax charge
- £55,778 of uncrystallised funds (500,000-444,222) can only be crystallised if the LTA excess tax rate is paid on that amount 

Is that correct?

What happens if you are in the above position at age 75, do you have to pay an LTA excess charge now, if so is the excess tax charge calculated on £55,778?

NoMore

Barry_Bear said:

Say you've used 58.6% of the LTA, the SIPP is £1.5m, £1.0 m crystallised, £500,000 uncrystallised. The LTA is £1.073m.

If you've crystallised 1m under the current LTA you've used 93% of your LTA and haven't much headroom left.

Barry_Bear

Say you've used 58.6% of the LTA, the SIPP is £1.5m, £1.0 m crystallised, £500,000 uncrystallised. The LTA is £1.073m.

If you've used 58.6% of the LTA does it follow that you have 41.4% of the current LTA available therefore £444,222 unused LTA and you can:
- withdraw income from the £1m crystallised at your marginal tax rate
- crystallise a further £444,222 without paying the excess LTA tax charge
- £55,778 of uncrystallised funds (500,000-444,222) can only be crystallised if the LTA excess tax rate is paid on that amount 

Is that correct?

What happens if you are in the above position at age 75, do you have to pay an LTA excess charge now, if so is the excess tax charge calculated on £55,778?