A Basic question about LTA...

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C_Mababejive
C_Mababejive Posts: 11,654 Forumite
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edited 20 July 2019 at 5:07PM in Pensions, annuities & retirement planning
I know the current LTA is £1,055,000 and that Government have committed to raising it by RPI.

Lets just say for now that LTA is £1m to make it easier to type and for this question only !

If my pension pot went over £1m how would i be taxed?

If i knew at the beginning of a tax year that my pot was valued at say £999,970 but i projected that it would exceed £1m at some time later that same year, if i withdrew some money to prevent that happening ,would i still be ok and not suffer penalties?
Feudal Britain needs land reform. 70% of the land is "owned" by 1 % of the population and at least 50% is unregistered (inherited by landed gentry). Thats why your slave box costs so much..
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  • Dazed_and_confused
    Dazed_and_confused Posts: 6,458 Forumite
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    First things first, what have you got in invested in??

    We all want a piece of that action :p
    If i knew at the beginning of a tax year that my pot was valued at say £99,970 but i projected that it would exceed £1m at some time later that same year,
  • System
    System Posts: 178,094 Community Admin
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    C_Mababejive wrote: »
    I know the current LTA is £1,055,000 and that Government have committed to raising it by RPI.
    To be pedantic, it is CPI not RPI, which will make a difference over time.
  • C_Mababejive
    C_Mababejive Posts: 11,654 Forumite
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    Now fixed .. :)
    Feudal Britain needs land reform. 70% of the land is "owned" by 1 % of the population and at least 50% is unregistered (inherited by landed gentry). Thats why your slave box costs so much..
  • Albermarle
    Albermarle Posts: 22,158 Forumite
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    If my pension pot went over £1m how would i be taxed?
    How much is in the pot is not directly relevant , the LTA only comes into play when you take benefits from the pension , or crystallise it . A so called BCE - a Benefit Crystallisation Event .
    For example if you crystallised £200K of the £1 million , then that £200K would count towards the LTA , but the remaining £800K would not until it was also crystallised.
    When you reach 75 , any remaining uncrystallised money is then counted towards the LTA.
    The rules are a bit more complex than that but basically most people reach LTA in stages during retirement .
  • squirrelpie
    squirrelpie Posts: 962 Forumite
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    Sorry, so if there was £999,970 in the account then the best policy would be to crystallize it all immediately and stop worrying? Or have I missed something? (I'm not in the OP's hypothetical position, so I haven't investigated the ramifications, but on the basis of what's been said so far it seems quite simple).
  • GDB2222
    GDB2222 Posts: 24,670 Forumite
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    squirrelpie wrote: »
    Sorry, so if there was £999,970 in the account then the best policy would be to crystallize it all immediately and stop worrying? Or have I missed something? (I'm not in the OP's hypothetical position, so I haven't investigated the ramifications, but on the basis of what's been said so far it seems quite simple).

    That would work.
    No reliance should be placed on the above! Absolutely none, do you hear?
  • C_Mababejive
    C_Mababejive Posts: 11,654 Forumite
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    what do you mean by "crytallise"..?
    Feudal Britain needs land reform. 70% of the land is "owned" by 1 % of the population and at least 50% is unregistered (inherited by landed gentry). Thats why your slave box costs so much..
  • ffacoffipawb
    ffacoffipawb Posts: 3,593 Forumite
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    C_Mababejive wrote: »
    what do you mean by "crytallise"..?

    Take 25% as tax free cash and move the rest into drawdown.
  • EdSwippet
    EdSwippet Posts: 1,588 Forumite
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    C_Mababejive wrote: »
    what do you mean by "crytallise"..?

    https://www.pensionbee.com/pensions-explained/pension-types/what-is-a-crystallised-pension
  • tibbles209
    tibbles209 Posts: 169 Forumite
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    To avoid a pension lifetime allowance tax bill altogether you would need to crystallise your entire pension before it hit the lifetime allowance, and then withdraw all growth from the crystallised balance until age 75 when it would next be tested against the lifetime allowance.
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