Where an individual dies before age 75 with uncrystallised money purchase funds, and provided the death benefits are distributed within the 2 year window, the full fund will be tested against the deceased member’s LTA. On A Day a huge raft of disparate measures and rules were scrapped with new ‘simplified’ rules coming into force.
I guess you might miss out on a bit of tax free cash but I’m not sure how precisely you can estimate or time it. Crystallised benefits (i.e. On that note: CETV = cash-equivalent transfer value. If you need to access any documents, please use our document finder below. I’m always confused about whether the lifetime allowance applies to ISAs? That sounds reasonable, but unfortunately – as with the annual allowance – the words ‘piss up’ and ‘brewery’ are never far away. Then will this £733K figure be calculated as a percent of LTA where the LTA is inflation indexed for the full ten years or against the original LTA today when I took the defined benefit pensions ?
Defined benefit – at 20 x pension plus any cash by addition This means that the lifetime allowance punishes most those that save and invest successfully! <>
My client has uncrystallised money purchase funds valued at £300,000 above the LTA and no LTA protection, what would the LTA excess tax charge be if they die before age 75? If it’s the latter and we’re saying you can SPEND up to £1.055m before you encounter a tax penalty (and surely part of this whole FI business is not being profligate spenders)- I’m not sure I care because I’d only start paying over LTA penalty rates of tax when I’m 97. Taking 25% of the DC pot as a charge is equivalent to taking 25% from the income stream it produces.
Keep bonds in pension and equities in isa as much as possible to minimise tax upon the part that generally grows faster and to reduce the risk of breaching the LTA, and rebalance as needed.
They did confirm that if say one takes a 2016 Fix at 1.25M [ which isn’t indexed ], should the standard limit ( currently just over 1M ) be higher than 1.25M at age 75, then that is the figure that is used. This is calculated as the value of the lump sum.
If your pension is already worth more than £1m, you can apply for "protection" which will allow you to maintain the previous £1.25m limit. Now to read the article again. If he protected his pension by keeping the current £1.25m limit, he would not pay any excess tax until he reached age 58 when the excess charge would be £8,000. – 25% of the amount of crystallisation at the time of crystallisation;
The lifetime allowance charge.
Q. In effect I am trying to get as close to 100% LTA without breaching it at the time of BCE5 assessment. Where a client’s pension is shared with their ex-spouse as a result of a pension sharing order is the pension debit amount tested against the original member’s lifetime allowance? The additional £400,000 will be a LTA excess and can either be taken as a LTA excess lump sum, after a 55% tax charge has been deducted, or used to provide income from drawdown or an annuity, after a 25% tax charge has been deducted.
As an optimisation strategy I could calculate every year (after DB crystallisation) when is the best time to take the 25% tax free lump sum from the DC based on forecasting growth of remaining DC fund to BCE5 in an attempt to maximise return but without breaching unused %LTA. It crept up to £1.8m in 2010/11 before being drastically cut back down. @naeclue https://www.bma.org.uk/advice/employment/pensions/lifetime-allowance Q. The lifetime allowance is set by the government and limits the total amount you can build up in pension benefits over your lifetime while still enjoying the full tax benefits.
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