The Lifetime Tax Allowance limit (LTA) is a ceiling or limit on the amount of pension benefit that can receive beneficial tax treatment at retirement. As this limit has reduced over recent years, various forms of protection have been introduced to prevent savers being disadvantaged.
From 6 April 2016 the standard LTA will reduce from £1.25 million to £1 million.
What happens if I exceed the Lifetime Tax Allowance?
From 5 April 2016, if at the time you take your benefits their value exceeds the £1 million LTA, you will incur a tax charge on the portion of benefits above this amount. This tax charge will be 55% if benefits are taken as a lump sum or 25% if paid as income, which itself is then subject to tax under PAYE rules.
Can I protect my pension savings if they exceed the LTA limit?
There are two sets of protection rules available which could help you to avoid paying a tax charge on pension savings in excess of 1 million after 6 April 2016 – Fixed Protection 2016 and Individual Protection 2016.
Various rules apply to each type of protection as outlined below:
How can I apply for these protections?
You will need to notify HMRC prior to taking benefits if you wish to rely on fixed protection 2016, whereas you have 3 years to apply for FP16. lf you need to take benefits before July 2016, interim applications for protection must be applied for in writing between 6 April 2016 and 31 July 2016. After this date everyone will need to make a full application using the HMRC digital online service which will be available in July 2016.
lf your application if successful, you’ll be given a protection reference number. Your provider will need this number when you want to take your benefits.
This document should not be construed as providing advice being entirely factual with regard to the LTA. lf you require any advice you should contact your usual adviser. Our Brighton Hove office can be contacted on 01273 208813 or email [email protected]
This article was originally published on Tuesday, February 23, 2016 – 16:28
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