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    • lisyloo
    • By lisyloo 2nd Aug 18, 9:40 AM
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    lisyloo
    LTA confusion
    • #1
    • 2nd Aug 18, 9:40 AM
    LTA confusion 2nd Aug 18 at 9:40 AM
    I am probably confused, so please correct me.
    This question has come up as I've read a few people planning to retire when they hit LTA.


    If you go all the way to LTA, isn't there a risk that your fund will grow faster than you can drawdown? (if you don't want to pay higher rate tax), so you exceed LTA later on (at BCA event at 75 say).
    So I'm thinking
    LTA is 1,000,030
    Lets suppose you draw down 45K per annum wanting to stay below higher rate tax.
    That means any annual growth above 4.5% will take you above LTA.

    Please correct me, I'd be delighted to be educated and be shown the error of my ways.
Page 2
    • Judwin
    • By Judwin 2nd Aug 18, 8:27 PM
    • 207 Posts
    • 88 Thanks
    Judwin
    So as I thought originally it makes sense to stop before LTA (if like most people you don't love your job enough to be willing to pay higher rate tax).
    Originally posted by lisyloo

    As with most things, I believe the answer is 'it depends'.


    If it's your own money paying into a PP/SIPP then it's difficult to see how saving 20%/40% on the way in is worth it if you're going to be paying 40%/55% on the way out. However, it may be worth it for some people caught in the marginal tax rate bands caused by child benefit and personal allowance claw-backs.


    If the payments in are via salary sacrifice, and have matching company contributions, then it probably is worth busting the LTA.


    Suppose you get matching employer contributions. Every 100 paid in only costs you 50 of gross pay. This would actually cost a HRT payer 29 in take home pay (40% IT, 2% NI).


    On the way out, if you're still HRT you get 'taxed/charged' at 55%, so you receive 45. It only cost you 29 on the way in though.


    Since you're talking about Ltd companies you have to work out if company contributions to your personal pensions and busting the LTA are the most efficient way of extracting money from your company.
    • ukdw
    • By ukdw 3rd Aug 18, 6:27 AM
    • 72 Posts
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    ukdw
    I think the better option is to crystallise the whole 1M pot on day one, and take the 25% PCLS. So you get 250K out, and start drawing down from the remaining 750K. You'd need to withdraw all the growth from the 750K every year up till you're 75. 6% on 750K would be 45K p/a.


    The issue then is what to do with the 250K lump sum. Various options, but in the end it's a nice problem to have.


    The other issue is that the state pension (8.5K ish) will kick in at age 67/68 and require you to reduce your drawdown to 36.5K ish if you're determined to stay a basic rate tax payer.


    Needs a spreadsheet to investigate the options.
    Originally posted by Judwin
    Whilst the 750k LTA test level wouldn't increase by inflation prior to the age 75 test, hopefully the 45k basic rate tax level would increase occasionally instead to allow larger percentages of the 750k to be withdrawn in the years closer to age 75.

    If state pension after age 67/68 starts to cause a problem I suppose it could always be deferred until after Age 75.
    • lisyloo
    • By lisyloo 3rd Aug 18, 7:08 AM
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    lisyloo
    Cheers I am PAYE and my employer passes on their 13.8% employers NI so I am taking max advantage of that and filling my basic rate tax band with divs @ 7.5% income tax.

    Much more interested in retiring early than meeting/breaching LTA.
    I dont believe either of us need LTA to have a comfortable retirement.
    We have 2 pensions for 2 of us and from what I've seen that's not always the case, for example those who have divorced would have split their pension provision.


    Since you're talking about Ltd companies you have to work out if company contributions to your personal pensions and busting the LTA are the most efficient way of extracting money from your company.
    We will have a large mortgage free home so we have the opportunity to downsize at some point.
    Dont know but contributing 40k pre-tax and retiring early certainly is Very tax efficient.
    Last edited by lisyloo; 03-08-2018 at 11:08 AM.
    • lisyloo
    • By lisyloo 3rd Aug 18, 7:10 AM
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    lisyloo
    Whilst the 750k LTA test level wouldn't increase by inflation prior to the age 75 test, hopefully the 45k basic rate tax level would increase occasionally instead to allow larger percentages of the 750k to be withdrawn in the years closer to age 75.

    If state pension after age 67/68 starts to cause a problem I suppose it could always be deferred until after Age 75.
    Originally posted by ukdw
    Good point.
    We are 50 & 52 so both have SPA of 67 I believe.
    • kidmugsy
    • By kidmugsy 3rd Aug 18, 12:45 PM
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    kidmugsy
    If state pension after age 67/68 starts to cause a problem I suppose it could always be deferred until after Age 75.
    Originally posted by ukdw
    What a good idea. Then at 75 you cut back the income drawdown, draw the much-boosted state pension, and have lots of money in the pot for leaving to grandchildren or whomever. (Though I'll bet that that lovely opportunity will be binned in the next few years.)
    Free the dunston one next time too.
    • lisyloo
    • By lisyloo 3rd Aug 18, 1:14 PM
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    lisyloo
    What a good idea.
    The downside of course is that you might not make it to 75 or may not be in a physical state to do all the activities you wish.


    I certainly don't expect to carrying heavy scuba gear at 75 and you don't see many 75 year old scuba divers.


    No grandchildren either.


    I went to the funeral of a 53 year old colleague 2 days ago (the 3rd such), so there is such a thing as leaving it too late. Sadly I know this to be a fact.
    • kidmugsy
    • By kidmugsy 3rd Aug 18, 2:51 PM
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    kidmugsy
    The downside of course is that you might not make it to 75 or may not be in a physical state to do all the activities you wish.


    I certainly don't expect to carrying heavy scuba gear at 75 and you don't see many 75 year old scuba divers.


    No grandchildren either.
    Originally posted by lisyloo
    Oh well, if you live past 75 it'll pay for your care home, presumably.
    Free the dunston one next time too.
    • Malthusian
    • By Malthusian 3rd Aug 18, 3:08 PM
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    Malthusian
    Ah ok.
    I did look into I think a little (for second property rather than pensions) which might be why I missed the joke.
    Originally posted by lisyloo
    It is a good joke but terrible tax planning. A "tactical divorce" risks losing 50% of the entire pension and other marriage assets, for the sake of a tax bill which at most is 55% of a fraction of the pension only (the growth in the drawdown fund in excess of your remaining Lifetime Allowance). It's cutting off your face to avoid a tax charge on your nose.

    The more lengths you go to to avoid HMRC deeming the arrangement to be artificial, the greater the possibility that your newly-eligible and independently-wealthy spouse will not be inclined to get back together with you. And if you were too much in love to contemplate not resuming the marriage, you wouldn't break it for several years over a mere tax bill in the first place.

    I certainly don't expect to carrying heavy scuba gear at 75 and you don't see many 75 year old scuba divers.
    Originally posted by lisyloo
    I imagine that by age 75 one coral reef starts to look the same as another and it's time to take up skydiving or motocross racing.
    • lisyloo
    • By lisyloo 5th Aug 18, 10:09 AM
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    lisyloo
    Oh well, if you live past 75 it'll pay for your care home, presumably.
    Originally posted by kidmugsy
    Well yes, but I think have the age somewhat wrong.
    We have 2 parents who went into care homes recently both aged 89.
    Having carers visiting at home and new tech can help people stay on
    their own homes longer.

    It;s made much of but it;s a minority who end up in care homes and generally not for long.

    In the period before the care home our parents spent a lot less when they couldnt drive and couldnt go out and could;t do much.
    One could presumably use ones home for care fees but that doesnt work if the spouse is still living in it.
    Last edited by lisyloo; 05-08-2018 at 10:30 AM.
    • lisyloo
    • By lisyloo 5th Aug 18, 10:14 AM
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    lisyloo
    I was never serious about a tactical divorce merely took an interest as one learns things whilst researching.
    Personally i think it;s impossible these days unless you are prepared to live under a rock - for example my movements yesterday ( and most days) were recorded on oyster 4 times, plus 2 credit card purchases. Its too easy to track people these day so that kind of fraud would mean using cash and abandoning the internet completely.
    • pensionpawn
    • By pensionpawn 5th Aug 18, 11:07 AM
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    • 28 Thanks
    pensionpawn
    I have to agree with Lisyloo insomuch that I would like to retire comfortably as early as possible as oppose working mainly to boost the pension pot up to LTA (which if my circumstances remain unchanged is likely to happen around 65) to retire in luxury. If LTA is an issue from 55, well done, however I would imagine that that is a problem for a very small percentage of the population. My father used to say that 'tomorrow is never promised' (he went through WW2, so you can probably understand why) however none of us are getting any younger / healthier, so unless my job becomes more exciting than the plans I have for retirement I'm going to press the button as soon as I can retire on my current net pay, indexed. I heard an old (easily in his late 70's, early 80's) man recently say that he now too old to enjoy the money he has (his wife had died a couple of years ago). Use it whilst you can, don't wait until it's too late!
    • lisyloo
    • By lisyloo 6th Aug 18, 10:04 AM
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    lisyloo
    Yep we don't need to flog ourselves to death to get 2xLTA.
    Retiring at 55 is not something I dreamed of until a few years ago, but when your pot gets bigger it can earn more than you.
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