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How will Lifetime Allowance affect me?

Will I have to pay tax?

This will depend on the planning you have taken at the point at which you wish to access your pensions:

1. People often do not understand that certain pension schemes are able to pay out in excess of 25% Pension Commencement Lump Sum (this used to be called tax free sum, but this is simply not the case anymore. For example, if you move to live and retire in countries such as France or Spain (and others) then you will be expected to pay tax on any lump sum from a pension even if it is QROPS).

2. If you have not sought to take protection then your scheme rules will restrict what you can take and how. Ultimately you will be restricted to a PCLS dictated by your scheme rules or 25% of the value of your pension or 25% of current Lifetime Allowance. You should seek advice on which applies to you.

3. The only way around this is to seek to “protect” your pension at a level greater than the current lifetime allowance in-force (see the relevant web page).
There are considerable points to understand about the rules pertaining to existing benefits and when they were taken – Seek Advice.

4. Offshore Pension Transfers to ROPS / QROPS are mis-understood largely. They may remove some taxes that would be due in the UK if the holder of the pension stays outside the UK, and they may help with Lifetime Allowance rules even if the person lives in the UK subject to legislative change, but they do not avoid taxes on where you are resident in places such as Europe and the USA, and even worse, they may lead to further taxes becoming due in some jurisdictions.

Be Aware!

If you exceed your Lifetime Allowance whether that be the current published Lifetime Allowance or any protection you have in place then you will:

• Either pay 55% tax in the UK on any further access.

• Or, you will pay 25% tax plus your marginal rate of income tax on any income taken (including if the funds are crystallised by moving them to a QROPS).

• Or, you will become due to pay tax on access of funds in the country you currently reside in (which may be between 0% and 75% in some countries) AND (1) or (2) will apply unless mitigated by some, but not all, QROPS planning

What should I check to see if this will affect me?

All of the below are added together to create your total calculation for Lifetime Allowance. You should look closely at your pension(s) as follows:

1. Are your funds in private money purchase schemes – take projected values at point of retirement or, if at retirement, take your actual value.

2. Take your final salary scheme projected income and multiply this by 20.

3. Examine current pensions in payment- whether from final salary schemes, capped/flexible drawdown.

There are considerable points to understand about the rules pertaining to existing benefits and when they were taken – Seek Advice.

4. Offshore Pension Transfers to ROPS / QROPS.

Be Aware!

The percentage of your Lifetime Allowance is used against any future Lifetime Allowance calculations. (E.g. A fund of £250,000 is 20% of this year’s lifetime allowance and would represent 20% of future Lifetime Allowance. If you delay taking the fund until 6th April 2016 then it will represent 25% of next year’s published Lifetime Allowance).

pension-lifetime-allowance-explained Pension Lifetime Allowance

Everything you need to know

When is the Pension Lifetime Allowance assessed?

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How is the Pension Lifetime Allowance calculated?

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Pension Lifetime Allowance rules

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British Pension Lifetime Allowance protections

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ROPS Lifetime Allowance

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How will Pension Lifetime Allowance affect me?

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Defined benefit Lifetime Allowance calculations

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Actions to avoid breaching Lifetime Allowance

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