Don’t by Caught Out by Lifetime Allowance Charges

Nov 5, 2015 | Retirement Planning, Trusts & Tax Planning

Lifetime allowance was introduced in 2006 and comes into play should your pension benefit exceed a certain amount. The idea behind this post is to explain how lifetime allowance works, and that the threshold where lifetime allowance becomes payable is reducing year on year.

When it was introduced lifetime allowance was set at £1.8 million. Should your accumulative pension benefits exceed £1.8 million you would be taxed at 55%.

However, as the years have rolled by the threshold has reduced. In April 2016, lifetime allowance will be £1 million. Currently it stands at £1.25 million.

Recently a pension provider put in a freedom of information request to HMRC asking them for data on how much tax they had collected in relation to lifetime allowance. The table shows the increase over the last six years have been significant.

Tax-Year Tax Revenue Received
2009/10 £24.9 million
2010/11 £31.4 million
2011/12 £46.9 million
2012/13 £52.9 million
2013/14 £98 million
2014/15 £94 million

Source Citywire

Although you may feel this change will not affect your pension benefit you could find out that this is not the case. At the moment, if you have a pension fund of £500,000 and providing you have an investment return of around 7.5%, then you will exceed the £1,000,000 threshold within ten years.

If you are contributing to a defined benefit pension scheme and you are due to receive a pension which exceeds £43,000 together with a lump sum that exceeds three times the pension at retirement, you will be deemed to exceed the lifetime allowance threshold, and be subject to tax.

Although lifetime allowance is not always avoidable, with good tax planning it can at least be reduced. Fifty five percent is a large chunk to lose of your retirement fund, and if you can avoid doing so, you should.

How do I Avoid Losing my Pension Fund to Lifetime Allowance?

The best way to ensure you do not lose your pension fund in lifetime allowance tax is to contact me, Michele Carby financial planner, and discuss your pension. It is often possible to reorganise your investments so they no longer are classed as lifetime allowance, and as such avoid the punitive tax they incur. This makes a considerable difference to your retirement plans.

Click here and complete Call Back Service form to get started.

Source: BestInvest

For more information, please contact Michele Carby at Holborn Asset Management on +971 50 618 6463 and on e-mail at [email protected]


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