Pension contributions over old LTA
Discussion
Hi
Given the abolition of the lifetime allowance last year, if one had the funds and and all other tax efficient wrappers had been utilised, would it still make sense to keep contributing into one's pension as much as allowed even if over the old limit?
Appreciate there is always the risk that the LTA gets reinstated but aside from that, any downside?
Thoughts welcome.
Given the abolition of the lifetime allowance last year, if one had the funds and and all other tax efficient wrappers had been utilised, would it still make sense to keep contributing into one's pension as much as allowed even if over the old limit?
Appreciate there is always the risk that the LTA gets reinstated but aside from that, any downside?
Thoughts welcome.
Downsides - no tax free cash on excess over £268275 tax free lump sum allowance (25% x £1073100), IHT on pensions from 6.4.2027. Tax rate on getting it out again.
Upsides - tax relief on the way in, can be a good way to get money out of a limited company, you may move abroad and have a different tax regime. Could use funds later in life to spend, could be as a secure income. Tax free growth in the fund (mostly), can do interesting things with a pension fund such as buy a commercial premise such as offices, pub even. Can lend money back to your limited company from the pension fund. Could be useful if getting divorced - pre-fund the divorce with tax relief, or rebuild the pot afterwards.
You may be able to get a higher allowance if you qualify for Fixed or Individual protection 2016 if done by 5th April 2025.
Upsides - tax relief on the way in, can be a good way to get money out of a limited company, you may move abroad and have a different tax regime. Could use funds later in life to spend, could be as a secure income. Tax free growth in the fund (mostly), can do interesting things with a pension fund such as buy a commercial premise such as offices, pub even. Can lend money back to your limited company from the pension fund. Could be useful if getting divorced - pre-fund the divorce with tax relief, or rebuild the pot afterwards.
You may be able to get a higher allowance if you qualify for Fixed or Individual protection 2016 if done by 5th April 2025.
Maybe - but I think your calculation might need to now consider the IHT aspects of things (and I think this also means understanding the tax position of anyone that you want to inherit to figure out if it makes sense or not). Especially if you have other investments that you are planning on living off.
It made more sense to keep paying into the pension when there was going to be no IHT on the pension pot.
i.e. From 2027, the money left in the pension gets taxed at 40% IHT and taxed again at the marginal tax rate of the beneficiary for them to access it.
If the beneficiary is paying 40%, then a £ in the pension could be taxed x (1-0.4) x (1-0.4) which would mean the beneficiary might only get to keep 36 pence in every pound.. (If they are at the 60% tax rate then they might only keep 24p in every pound !
In which case, it might actually make more sense to pay the income tax on it in the first place and spend it on treating the beneficiaries while you are alive....
It made more sense to keep paying into the pension when there was going to be no IHT on the pension pot.
i.e. From 2027, the money left in the pension gets taxed at 40% IHT and taxed again at the marginal tax rate of the beneficiary for them to access it.
If the beneficiary is paying 40%, then a £ in the pension could be taxed x (1-0.4) x (1-0.4) which would mean the beneficiary might only get to keep 36 pence in every pound.. (If they are at the 60% tax rate then they might only keep 24p in every pound !
In which case, it might actually make more sense to pay the income tax on it in the first place and spend it on treating the beneficiaries while you are alive....
fat80b said:
i.e. From 2027, the money left in the pension gets taxed at 40% IHT and taxed again at the marginal tax rate of the beneficiary for them to access it.
Are you sure this correct? Surely, on my departure, the pot would be realised and IHT paid, then my beneficiaries could do what they wanted with the proceeds?Double Fault said:
fat80b said:
i.e. From 2027, the money left in the pension gets taxed at 40% IHT and taxed again at the marginal tax rate of the beneficiary for them to access it.
Are you sure this correct? Surely, on my departure, the pot would be realised and IHT paid, then my beneficiaries could do what they wanted with the proceeds?Rufus Stone said:
Income Tax free if you die before age 75, taxable thereafter. IHT applies if not allocated to a spouse post April 2027. Both taxes apply. Might change before we get to 2027 though.
Ouch...wasn't aware of the double hit. Still, a pension is meant to be for one's retirement, not legacy, so fair enough.I best get spending.
Richonenope said:
Downsides - no tax free cash on excess over £268275 tax free lump sum allowance (25% x £1073100), IHT on pensions from 6.4.2027. Tax rate on getting it out again.
Upsides - tax relief on the way in, can be a good way to get money out of a limited company, you may move abroad and have a different tax regime. Could use funds later in life to spend, could be as a secure income. Tax free growth in the fund (mostly), can do interesting things with a pension fund such as buy a commercial premise such as offices, pub even. Can lend money back to your limited company from the pension fund. Could be useful if getting divorced - pre-fund the divorce with tax relief, or rebuild the pot afterwards.
You may be able to get a higher allowance if you qualify for Fixed or Individual protection 2016 if done by 5th April 2025.
You can lend back to the limited Co if operating a SSAS but not a SIPP. the SIPP can however borrow to gear up for future projects. Upsides - tax relief on the way in, can be a good way to get money out of a limited company, you may move abroad and have a different tax regime. Could use funds later in life to spend, could be as a secure income. Tax free growth in the fund (mostly), can do interesting things with a pension fund such as buy a commercial premise such as offices, pub even. Can lend money back to your limited company from the pension fund. Could be useful if getting divorced - pre-fund the divorce with tax relief, or rebuild the pot afterwards.
You may be able to get a higher allowance if you qualify for Fixed or Individual protection 2016 if done by 5th April 2025.
Rufus Stone said:
Income Tax free if you die before age 75, taxable thereafter. IHT applies if not allocated to a spouse post April 2027. Both taxes apply. Might change before we get to 2027 though.
Lots will change before 2027. The Pensions Industry has been told it will have to perform a second IHT calculation purely on pensions. As you can imagine they told the Govt to FRO. Double Fault said:
fat80b said:
i.e. From 2027, the money left in the pension gets taxed at 40% IHT and taxed again at the marginal tax rate of the beneficiary for them to access it.
Are you sure this correct? Surely, on my departure, the pot would be realised and IHT paid, then my beneficiaries could do what they wanted with the proceeds?Jockman said:
Lots will change before 2027. The Pensions Industry has been told it will have to perform a second IHT calculation purely on pensions. As you can imagine they told the Govt to FRO.
Trouble is people planning based on the rules as they now stand. The “ double taxation “ issue does seem unfair but as with all of Rachel’s changes will she be minded to actually change anything ?
Aiui if the rules don’t change and if applicable / affected, the delays and costs to obtaining probate will be extensive and far higher.
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