The Abolition of Lifetime Allowance was Heralded as a Great Simplification – But you May End Up Paying More Tax...

The Abolition of Lifetime Allowance was Heralded as a Great Simplification – But you May End Up Paying More Tax…Written on August 27, 2024 by Michael Powell

Michael Powell - Financial Planning Partner - Kirk Rice

Michael Powell – Partner, Financial Planning

This article will be of particular interest to you if you have pension savings or deferred/undrawn final salary benefits.

The abolition of the Lifetime Allowance means you could pay increased taxes in the future. This new legislation has several issues – but there is a solution.

I’m reminded by a case I saw recently:

A client of mine started a government pension four years ago which used 97% of their Lifetime Allowance. That Scheme paid them tax-free cash and an income.

Last month they started a second pension Scheme, from the Civil Service. They expected £60,000 tax-free cash and an income – as shown on their annual statement. The actual amount paid tax-free was £8,048 and the rest was taxed.

The all-important Transitional Tax-Free Amount Certificate (TTFAC)

In their retirement statement from the Civil Service, there was a sentence that asked if they had a Transitional Tax-Free Amount Certificate (TTFAC). They didn’t have the certificate and signed the forms accordingly.

If, before they completed the forms, they had applied for the TTFAC, they would have had all £60,000 tax-free. The new legislation currently prohibits amendment after the event!

Additionally, they had £50,000 saved in a linked pension savings account – also taxable in full if they draw from it without a TTFAC. Should they pass away before the age of 75, the money in the account could also be taxable before being paid to their beneficiaries, if over their remaining allowance.

Obtaining a TTFAC before making any pension decisions could have avoided the tax consequences and save about £40,000 tax being paid.

There are many other scenarios that are affected but you’ll be glad I’ve not carried on explaining those too. It might make for a rather long “War & Peace” length article!

Pensions and Tax can be a Complicated Business

At Kirk Rice, both pension and tax specialist sit together under one roof. If you want to make the most of your retirement funds, we can help with a truly interconnected service.

Email us at info@kirkrice.co.uk or contact us here.

Please note: This article is correct as at the publication date. The answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made. The information is based on current tax legislation which may change in future. Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of relief from taxation are subject to change. The Financial Conduct Authority does not regulate tax planning.

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