Consequences if the Pension LTA tax is re-introduced by Labour?

MK62

zagfles said:

Albermarle said:

zagfles said:

Albermarle said:

One possibility is to hedge your bets.
Part crystallise, or just crystallise one pot if you have more than one.

If LTA is then reintroduced at maybe even a lower level, you could well still be OK.
Plus you only expose a lower amount to IHT if that is an issue,
Plus less issues with CGT/dividend/interest taxes with a smaller  tax free lump sum.

What would be the point of that? You say a smaller TFLS, so presumably you mean crystallise less than 100% of current LTA. So how would it make a difference compared to not crystallising at all? Only way I can see if the LTA was introduced but at different level to now, if at a higher level than partly crystallising now you'd be worse off, at a lower level it'd make you better off.

But partly crystallising below LTA means you get zero advantage of the current 0%/LTA abolision should it be reintroduced, because you've not used up & exceeded the LTA during the small window where there was no LTA charge!

I did say in my post also what I have highlighted in bold in your post. In that scenario it could work.

But partly crystallising below LTA means you get zero advantage of the current 0%/LTA abolision should it be reintroduced, because you've not used up & exceeded the LTA during the small window where there was no LTA charge!
But you would still be better protected against IHT.

Just ideas really as each persons situation is different, and we have no idea what will happen anyway. Although as has been mentioned previously I suspect LTA will remain abolished, but IHT exemption will come under the spotlight.

Even it was reintroduced at a lower level than now, it'll almost certainly come with similar protections to those when the LTA was lowered previously. So then partially crystallising would have no advantage over leaving the pot uncrystallised and be worse protected againt IHT.

It's all guesswork but ISTM that partially crystallising now just gets the worst of all worlds in any realistic scenarios, either fully crystallising now or not crystallising at all would likely be better.

Personally I think it's very unlikely that the LTA would simply be brought back in it's current form, but at an even lower level..........if it was reintroduced, I think it'd be more likely at a higher level, and then it could easily be argued that any "protections" would be unnecessary........but it's all speculation atm.
If it was reintroduced, I think it's likely that it would come with anti-forestalling measures to prevent a flood of pre-reintroduction pension crystallisations......in that case, crystallising soon might be the way to go......but there's no way to know if that's how it will actually play out.

RogerPensionGuy

RogerPensionGuy said:

Looking back at how all governments have played about with pensions these last 20 years, I feel they will be tinkering again soon, upping the AA by 50% may look too big by some, removing the LTA and keeping the current IHT rules may look far to generous to some, freezing the 25% tax-free at 268K not too upsetting maybe.

If they had just of raised the LTA to the 1.5/1.8M range and raised the AA by 25% to 50K maybe it could have survived a few years but, I think with so many tuff years coming this low hanging cash tree will be getting trimmed in 2025 or 2026, however 2025 is my guess.

Reference activating pension stuff close either side of 6th April, I still feel just after is in my head now.   

I have been going over and over this in my head and trying to make plans as I am currently over the LTA.

I have a good DB and a good DC pension and stopping all paid employment by Jan 2024 at the latest. 

I am currently 99% thinking I will activate my DB of about 35K PA just after 6th of April 2024 to hopefully get no LTA % tag as consumed anywhere. I feel this is better than kicking it off in March 2024.

At the same time of kicking off the DB scheme I plan to draw 20K PA (15K taxable and 5K tax free) from the DC plan making my total taxable income of 50K PA and paying 20% income tax on 37.5K making my net income about 47.5K PA.

Then reduce my DC tap each year for 5 years until I get state pension and at this stage my DC and state pension will be over 50K PA and just pay 40% on all income that's in the higher rate tax band.

Let my DC pot cook over time and probably drain out more tax free cash as I see fit and just leave crystallised funds in the pot cooking long term and if cash needed, just drain it out and paying 40% income tax I guess.

I see my DC crystallised funds as an emergency pot only and have children they may get if I expire with cash in it.

I am interested in any views or comments on all the above please?

Cheers Roger.   

 

zagfles

RogerPensionGuy said:

RogerPensionGuy said:

Looking back at how all governments have played about with pensions these last 20 years, I feel they will be tinkering again soon, upping the AA by 50% may look too big by some, removing the LTA and keeping the current IHT rules may look far to generous to some, freezing the 25% tax-free at 268K not too upsetting maybe.

If they had just of raised the LTA to the 1.5/1.8M range and raised the AA by 25% to 50K maybe it could have survived a few years but, I think with so many tuff years coming this low hanging cash tree will be getting trimmed in 2025 or 2026, however 2025 is my guess.

Reference activating pension stuff close either side of 6th April, I still feel just after is in my head now.   

I have been going over and over this in my head and trying to make plans as I am currently over the LTA.

I have a good DB and a good DC pension and stopping all paid employment by Jan 2024 at the latest. 

I am currently 99% thinking I will activate my DB of about 35K PA just after 6th of April 2024 to hopefully get no LTA % tag as consumed anywhere. I feel this is better than kicking it off in March 2024.

At the same time of kicking off the DB scheme I plan to draw 20K PA (15K taxable and 5K tax free) from the DC plan making my total taxable income of 50K PA and paying 20% income tax on 37.5K making my net income about 47.5K PA.

Then reduce my DC tap each year for 5 years until I get state pension and at this stage my DC and state pension will be over 50K PA and just pay 40% on all income that's in the higher rate tax band.

Let my DC pot cook over time and probably drain out more tax free cash as I see fit and just leave crystallised funds in the pot cooking long term and if cash needed, just drain it out and paying 40% income tax I guess.

I see my DC crystallised funds as an emergency pot only and have children they may get if I expire with cash in it.

I am interested in any views or comments on all the above please?

Cheers Roger.   

 

I'd wait and see exactly how the LTA will be abolished. The concept of benefit crystallisation or similar will still be needed to track PCLS usage, so that could easily be used to regenerate LTA % usage if LTA was reintroduced. In the same sort of way as "pre-commencement" (pre A-day) pensions were treated when the current regime was introduced.

My view is it's unlikely there'd be any benefit in crystallising next tax year rather than this, but of course no-one knows, we're all guesiing

RogerPensionGuy

My guessing is they may introduce a LTA  % or sumthink on the 268K pension tax-free allowance. 

I have about 100K AVC bolted on my DB scheme and planning to take that in April 2024 and suspect that will consume 37% of this allowance. 

Then as previously mentioned, essentially let DC cook and only draw tax-free chunks when it suits me.

ex-pat_scot

My initial approach will be to get to 55 in 12 months' time.
If the pot is at £1.073m, then take the full 25% PCLS immediately - pay off the mortgage, wrap some in ISAs.
(why not take it all off the table asap, as the max is not going to increase - better to get it out first, then invest in ISAs / unwrapped investments).
That won't trigger MPAA, so I can continue to put £60,000 AA into the pot, and benefit from 42% and 62% marginal tax relief rates. That would give me a gross (after sal sac) of £80,000 pa

I might knock back my hours at that point. I fancy going (back) into contracting on a day rate, under a Ltd Co and outside IR35, and use that to fund (1) a nice BEV company car at tiny BIK rate (2) ongoing healthy contributions into my SIPP. I won't need to have hte security of a salary at that point, as my pension will be my reserve fund and will allow me to chase interesting (but perhaps not full time) work and still bring in roughly the same income.

Whilst I might not crystallise in April, I'll certainly be alert to the political risks later next year, and ready to move quickly if the signs are worrying...