LTA 22 February at 12:16AM in Pensions, annuities & retirement planning 10 replies 344 views

Argonauts

Sorry it’s a post again 

LTA
is the amount you can take out of your pension schemes ?
£1073000 maximum at momment 



you could have £1.5 million in your pots but only take out 800k , so no extra tax to pay 


it’s the amount you actual take out 
you cystillize an amount and take some out !
tax free lump sum counts towards the total 

1000000 
1 million gets 250k tax free

so almost 25% LTA gone at present total of 1073000


many sites say once above LTA u pay tax charge 


it’s the amount you actual take out 

in theory just keep below 1073000
or whatever figure is 



other factors later BCE etc
death before or after 75 

many thanks to people who reply ✅

pinnks

Not sure what you are trying to say.  Have a read on HMRC's guidance Tax on your private pension contributions: Lifetime allowance - GOV.UK (www.gov.uk)

Argonauts

Not sure ?
LTA
its how much you take out of your pots ?

not how much is in them 

Argonauts

You usually pay tax if your pension pots are worth more than the lifetime allowance. This is currently £1,073,100.

Says on the link given earlier ?


more confusion ?
worth more so if it’s above figure and you start taking pension extra taxes ?

surely it’s the total that you actually take out crystallize !!

under 1073000 no worries then 

Secret2ndAccount

It's not how much you take out. It's how much you crystallise.
If you take out 250k tax free, then you also 'crystallise' the 750k (the other 75%) that goes with it. So the whole million is immediately set against your LTA, and you've used up 93% of your LTA. It's unlikely you would withdraw the 750k all in one go, but it has still used up your LTA. Once you have crystallised 100% of your LTA (currently 1.073m) then any further crystallisations will incur a substantial tax charge, even if you don't withdraw most of the money. When you reach age 75, any money inside the pension which hasn't already been crystallised is considered crystallised, so that could well trigger a charge too.
There is one bit of good news. If your crystallised funds grow in value, you can take the extra money out of the pension before age 75, and that won't use any more of your LTA (because those funds were already crystallised). You will pay income tax as you take the money out, but no extra LTA charge.

If your pot is 1.5m you are going to be paying a hefty LTA charge. You have some control over when and how, but you ain't gettin out of it completely.

Some people, when they reach 1.073m, crystallise the entire pension. They take 268k lump sum, leaving 804,750 invested. Then, each year, they take an income from the growth. So the pot size stays in the region of 805k. It only needs to be below 804,750 in time for your 75th birthday, and there is never any LTA charge to pay. This way, you might get 1.5mil or more out over a lifetime without any LTA charge. But if your pot is already at 1.5 mil, you are past the point where this can work. There will be some LTA charge to pay.

Argonauts

surely it’s the total that you actually take out crystallize

Like I thought 
many thanks 
just got confused again 
sorry for asking question I knew answer to 

retiringtoosoon

Is this a haiku?

Workerdrone

Secret2ndAccount said:

It's not how much you take out. It's how much you crystallise.
If you take out 250k tax free, then you also 'crystallise' the 750k (the other 75%) that goes with it. So the whole million is immediately set against your LTA, and you've used up 93% of your LTA. It's unlikely you would withdraw the 750k all in one go, but it has still used up your LTA. Once you have crystallised 100% of your LTA (currently 1.073m) then any further crystallisations will incur a substantial tax charge, even if you don't withdraw most of the money. When you reach age 75, any money inside the pension which hasn't already been crystallised is considered crystallised, so that could well trigger a charge too.
There is one bit of good news. If your crystallised funds grow in value, you can take the extra money out of the pension before age 75, and that won't use any more of your LTA (because those funds were already crystallised). You will pay income tax as you take the money out, but no extra LTA charge.

If your pot is 1.5m you are going to be paying a hefty LTA charge. You have some control over when and how, but you ain't gettin out of it completely.

Some people, when they reach 1.073m, crystallise the entire pension. They take 268k lump sum, leaving 804,750 invested. Then, each year, they take an income from the growth. So the pot size stays in the region of 805k. It only needs to be below 804,750 in time for your 75th birthday, and there is never any LTA charge to pay. This way, you might get 1.5mil or more out over a lifetime without any LTA charge. But if your pot is already at 1.5 mil, you are past the point where this can work. There will be some LTA charge to pay.

Just when I think I understand it, a quote like this throws me a curve ball. I thought if the LTA was 1.073m, and you crystallise the whole lot taking 268k tax free, them the amount it needed to be below in time for your 75th birthday was still 1.073m. That was the LTA at the time you crystallised. That was my understanding of what it could grow back to without triggering LTA charge, but no more than that.

Pat38493

Workerdrone said:

Secret2ndAccount said:

It's not how much you take out. It's how much you crystallise.
If you take out 250k tax free, then you also 'crystallise' the 750k (the other 75%) that goes with it. So the whole million is immediately set against your LTA, and you've used up 93% of your LTA. It's unlikely you would withdraw the 750k all in one go, but it has still used up your LTA. Once you have crystallised 100% of your LTA (currently 1.073m) then any further crystallisations will incur a substantial tax charge, even if you don't withdraw most of the money. When you reach age 75, any money inside the pension which hasn't already been crystallised is considered crystallised, so that could well trigger a charge too.
There is one bit of good news. If your crystallised funds grow in value, you can take the extra money out of the pension before age 75, and that won't use any more of your LTA (because those funds were already crystallised). You will pay income tax as you take the money out, but no extra LTA charge.

If your pot is 1.5m you are going to be paying a hefty LTA charge. You have some control over when and how, but you ain't gettin out of it completely.

Some people, when they reach 1.073m, crystallise the entire pension. They take 268k lump sum, leaving 804,750 invested. Then, each year, they take an income from the growth. So the pot size stays in the region of 805k. It only needs to be below 804,750 in time for your 75th birthday, and there is never any LTA charge to pay. This way, you might get 1.5mil or more out over a lifetime without any LTA charge. But if your pot is already at 1.5 mil, you are past the point where this can work. There will be some LTA charge to pay.

Just when I think I understand it, a quote like this throws me a curve ball. I thought if the LTA was 1.073m, and you crystallise the whole lot taking 268k tax free, them the amount it needed to be below in time for your 75th birthday was still 1.073m. That was the LTA at the time you crystallised. That was my understanding of what it could grow back to without triggering LTA charge, but no more than that.

It's because you already took out completely the 25% tax free so that's not part of the drawdown balance anymore.  

tiring33

Workerdrone said:

Just when I think I understand it, a quote like this throws me a curve ball. I thought if the LTA was 1.073m, and you crystallise the whole lot taking 268k tax free, them the amount it needed to be below in time for your 75th birthday was still 1.073m. That was the LTA at the time you crystallised. That was my understanding of what it could grow back to without triggering LTA charge, but no more than that.

In the situation you describe where you have used 100% of your LTA by crystallising £1,073,000, taken the tax free cash of £268,250 and put the balance of £804,750 crystallised funds into drawdown, there will be an additional LTA charge at 75 if your crystallised funds have grown above the £804,750. For example if the crystallised fund has grown by £100,000 to £904,750 you will pay a 25% LTA charge on the £100,000 growth. Just keep an eye on your crystallised fund and make sure you drawdown enough each year to keep the figure below the £804,750 and you'll avoid this second charge on crystallised fund growth.

coyrls

tiring33 said:

Workerdrone said:

Just when I think I understand it, a quote like this throws me a curve ball. I thought if the LTA was 1.073m, and you crystallise the whole lot taking 268k tax free, them the amount it needed to be below in time for your 75th birthday was still 1.073m. That was the LTA at the time you crystallised. That was my understanding of what it could grow back to without triggering LTA charge, but no more than that.

In the situation you describe where you have used 100% of your LTA by crystallising £1,073,000, taken the tax free cash of £268,250 and put the balance of £804,750 crystallised funds into drawdown, there will be an additional LTA charge at 75 if your crystallised funds have grown above the £804,750. For example if the crystallised fund has grown by £100,000 to £904,750 you will pay a 25% LTA charge on the £100,000 growth. Just keep an eye on your crystallised fund and make sure you drawdown enough each year to keep the figure below the £804,750 and you'll avoid this second charge on crystallised fund growth.

Also with the £1.5M pot example, there will be an LTA charge on the uncrystallised portion of the £1.5M pot at 75, if the full LTA has been used at the crystallisation of £1.073M.