Pension lifetime allowance

[CAH706]

Hi

Are the any recommended strategies for minimising the tax impact when using funds above the lifetime allowance.

Specifically, If investments rise and push the amount above the lifetime allowance is there any efficient way to use the funds or is it simply a case of paying the 55% tax rates?

Thanks

[JulianPH]

CAH706 said:

Hi

Are the any recommended strategies for minimising the tax impact when using funds above the lifetime allowance.

Specifically, If investments rise and push the amount above the lifetime allowance is there any efficient way to use the funds or is it simply a case of paying the 55% tax rates?

Thanks

There is very little you can do with regards to this ridiculous rule that penalises prudent saving and investment success.

Remember it is 55% on the tax free cash element and 25% on income withdrawals (on top of your marginal tax rate).

Edited by JulianPH on Thursday 2nd April 11:30

[CAH706]

Thanks Julian. I thought that was the case.

[JulianPH]

CAH706 said:

Thanks Julian. I thought that was the case.

No problem!

[Stay in Bed Instead]

JulianPH said:

Remember it is 55% on the tax free cash element

[p1doc]

for NHS you get tax free lump sum up to 250,000 which SPPA take off first before then additional 25% on whatever pension you take obviously on top of normal tax rate as fellow GP retired recently and had this happen to him

[LeoSayer]

My understanding, hopefully correct, is that there are some steps you can take to reduce the impact of the LTA.

Your post implies that you can choose to withdraw only those funds above (or below) the lifetime allowance. You can't. The drawdown is assessed for the tax against the value of all you pensions and the allowance at the time of the drawdown.

If you expect your pot to grow faster than inflation, then withdraw as much as possible as early as possible. For example, instead of drawing down £30k per year, withdraw £50k instead. You will still only pay 20% income tax (assuming no other income) and you can they put the additional £20k in an ISA. You will then avoid any future LTA tax on the growth of that £20k.

Use events like market downturns to take the opportunity to drawdown more eg. if your pot reduces from £1.2m to £1.05m then you are below the LTA.

Similar to the above, if you have other assets earmarked for retirement (eg. ISAs, cash etc) then aim to deplete the pension pot first, whilst bearing in mind the inheritance tax benefits of a pension pot.

[Robert-q32ja]

Fully fund things like EISs, VCTs etc? Get your own back on the tax paid!