The Pension Lifetime Allowance (LTA) is the maximum amount of pension-saving you can build up over your life which benefits from tax relief. There is a limit on the amount of tax relief you can get. If you build up more than the LTA, you could pay a tax charge on the excess.
The LTA is currently £1.5 million but will reduce to £1.25 million from April 6 2014.
If you’re in a defined benefit scheme and take your pension before April 6 2014
Your pension benefits will be tested against the LTA of £1.5 million. This level of pension-saving is broadly equivalent to an annual pension of:
▪ £75,000 if you don’t take a lump sum
▪ £56,250 if you take the maximum tax-free lump sum
If you’re in a defined benefit scheme and take your pension after April 6 2014
Your pension benefits will be tested against the LTA of £1.25 million. This level of pension saving is broadly equivalent to an annual pension of:
▪ £62,500 if you don’t take a lump sum
▪ £46,875 if you take the maximum tax-free lump sum
If you’re in a money purchase scheme
For a money purchase scheme it’s the value of your pension pot that is tested against the LTA at the time you take your benefits.
When your pension savings are tested against the LTA
Pension savings are tested against the LTA when you take your pension benefits and on certain other key events.
Other events triggering a LTA test include:
▪ When you reach age 75 in certain circumstances
▪ If you transfer your pension pot to a qualifying recognised overseas pension scheme (QROPS)
▪ If a pension you’re getting increases beyond a certain limit
▪ On the payment of certain lump sums – such as on serious ill health or some types of death benefit.
Rates of LTA tax charge
The charge is paid on any excess over the LTA limit. The rate depends on how this excess is paid to you. If the amount over the LTA is paid as a:
▪ Lump sum – the rate is 55%
▪ Pension – the rate is 25%
Act now to maximise your income.
Contact Blacktower Financial Management to find how to save paying unnecessary tax on your pensions when you leave the UK. There are only weeks left to do this and once done it should safeguard your future.
Blacktower Financial Management (Intl) Ltd is licensed by the Financial Services Commission in Gibraltar. Blacktower Financial Management Ltd is authorised and regulated by the Financial Conduct Authority in the UK.
By Paul Beckwith
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Paul Beckwith is an International Financial Adviser working with Blacktower Financial Management (International) Limited
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