Lifetime Allowance – 5 Key Facts

  1. Current Lifetime Allowance 5 Key Facts (LTA)

The LTA is now £1million, reduced from £1.25 million.

  1. LTA- Fixed Protection 2016

This is one of two new protections.

You can apply for Fixed Protection 2016, whether your benefits exceed £1 million or not, as long as you do not already have one of the following protections:

  • Enhanced Protection
  • Primary Protection
  • Fixed Protection 2012
  • Fixed Protection 2014

For Fixed Protection 2016 you cannot build up more pension benefits after 5 April 2016. It is fixed at £1.25 million. Members with Fixed Protection 2016 may be able to take a tax free lump sum of up to £312,500.

  1. Individual Protection 2016

Number 3 on our list of Lifetime Allowance 5 key facts is Individual Protection 2016. You can apply to HMRC for Individual Protection 2016 as long as you do not have Primary Protection and the capital value of your pension benefits, from all your registered pensions schemes  is equal to or over £1 million as at 5 April 2016.

Individual Protection 2016 allows you to build up further benefits. You will have an individual allowance equal to the capital value of your benefits at 5 April 2016 but capped at £1.25 million.

Pension benefits will be protected up to this amount and as a result you may be able to take a tax free lump sum of up to 25% of your individual allowance.

  1. LTA Charge

The LTA Charge can be applied in either of two ways or a combination of both depending on how the excess benefits value above the LTA is taken. The charge is:

  • 55% if taken as a lump sum, or
  • 25% if taken as income.
  • Whilst this is number 4 on our list of Lifetime Allowance 5 key facts, it is one of the most relevant to transfers to QROPS as only the 25% tax level will apply.
  1. Non-UK residents and the LTA Charge

A non-resident UK pension holder who has left the UK for more than 5 years and is concerned that the total calculated capital value of the UK pensions will exceed the LTA may want to consider a transfer to a QROPS – provided a full analysis is undertaken – to avoid the charge.

However, this final point in our Lifetime Allowance 5 key facts could have  a kick in it. At the point of transfer there could be an immediate tax charge if the limit is breached on transfer (see point 4 of Lifetime Allowance 5 key facts )

More information about the Lifetime Allowance 5 key facts can be found here