Impact of breaching LTA on 25% 'Tax Free Lump Sum'.

Sillychuckie

Hello. I have just come across this piece of text here: https://www.hl.co.uk/help/sipp,-drawdown-and-annuity/sipp/retiring/how-does-tax-free-cash-from-a-pension-work
It says: "You are not able to take tax-free cash if you have exceeded your Lifetime Allowance.".
I'm shocked, but can't seem to find confirmation.

I read this to mean that if you breach the pension lifetime allowance, (£1,073,100), then you lose the right to withdraw ANY of your pension (even the bit under the LTA), using the Tax Free Lump Sum option (normally 25%).

Is this true? Can anyone direct me to an HMRC site that says the same please?
I always thought that you would be penalized and taxed heavily on the excess, but didn't realize that breaching it by 1p (for example), would mean you forego almost 250k tax free.
This is how I understand he text.

Can anyone please confirm?
Thanks.

SC

Marcon

Sillychuckie said:

Hello. I have just come across this piece of text here: https://www.hl.co.uk/help/sipp,-drawdown-and-annuity/sipp/retiring/how-does-tax-free-cash-from-a-pension-work
It says: "You are not able to take tax-free cash if you have exceeded your Lifetime Allowance.".
I'm shocked, but can't seem to find confirmation.

I read this to mean that if you breach the pension lifetime allowance, (£1,073,100), then you lose the right to withdraw ANY of your pension (even the bit under the LTA), using the Tax Free Lump Sum option (normally 25%).

Is this true? Can anyone direct me to an HMRC site that says the same please?
I always thought that you would be penalized and taxed heavily on the excess, but didn't realize that breaching it by 1p (for example), would mean you forego almost 250k tax free.
This is how I understand he text.

Can anyone please confirm?
Thanks.

SC

If you click on the HL link you've given, and then click again on the link they give to more info about the LTA (takes you to their factsheet), that should put your mind at rest. Might be worth your while pointing out to HL that their comment, taken in isolation, could cause a panic attack!

coyrls

No, it's not true.  You can take tax-free cash at 25% of the value of your pension or the LTA, whichever is lower.

Albermarle

The confusion is thinking that by having a pension pot over £1,073,100, you have already breached the LTA.
The LTA only starts to come into play when you start to crystallise the pension.

So if for example you had an uncrystallised pension pot of £1.2 Million, you could get tax free cash of 25% of £1,073,100, but not on the excess above that.
Lifetime allowance - All you need to know - Royal London for advisers

gm0

They are trying to make the point that when accessed/crystallised - you don't get any tax free cash on amounts above the limit. As well as paying the 25%/55% penalty on amounts above the limit.  That's all it is

It doesn't affect what goes on on the fund below the limit

Sillychuckie

OK, thanks all. I did have a mini panic attack last night after reading it. I'll certainly feed back to them.