When is the Lifetime Allowance assessed?
Which events lead to the lifetime allowance being measured?
Each of us have an overall lifetime limit and once the values of all our pensions exceed this limit, tax will be due. The lifetime limit is tested on the occurrence of a range of events, which are:
1. When you use your pension fund to buy an annuity, move into drawdown, take an uncrystallised pension lump sum or take tax-free cash before 75.
2. Drawing a pension and pension commencement lump sum from a final salary scheme.
3. You reach 75 with a Defined Benefit Scheme without drawing all benefits.
4. You reach 75 in drawdown – the LTA is based on the amount that the fund has grown whilst in drawdown.
5. You reach 75 and you have unused money purchase funds.
6. Upon death at any age, apart from lump sums from crystallised funds as they have already been tested.
7. You transfer to an Offshore Pension ( ROPS / QROPS).
8. There are a few other instances, relating to one off payments and large increases to pensions in payment from final salary schemes.
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).