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LTA and tax

rms789
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Joined: July 6th, 2019, 3:28 pm
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LTA and tax

#234424

Postby rms789 » July 6th, 2019, 3:51 pm

Having saved for a long time into my pension and had the benefit of good investment returns I have a fund of £1.7m with lifetime protection of £1.25m. I'm 57 and am thinking of taking the 25% TFLS of the 1.25m and moving the balance into flexi income drawdown. Does this crystalise the whole of my pot and would the tax be 25% of the amount moved to drawdown? Is there a more tax effiecient way of accessing the fund?

I got totally confused trying to understand HMRC website so thank you in advance for any help

DrBunsenHoneydew
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Re: LTA and tax

#234439

Postby DrBunsenHoneydew » July 6th, 2019, 5:07 pm

rms789 wrote:Having saved for a long time into my pension and had the benefit of good investment returns I have a fund of £1.7m with lifetime protection of £1.25m. I'm 57 and am thinking of taking the 25% TFLS of the 1.25m and moving the balance into flexi income drawdown. Does this crystalise the whole of my pot and would the tax be 25% of the amount moved to drawdown? Is there a more tax effiecient way of accessing the fund?

I got totally confused trying to understand HMRC website so thank you in advance for any help


You could just crystallise £1.25M and take 25% of that tax-free. That would use 100% of your protected LTA.
The decision is whether you need to take income from the "Excess 450k" or not. The "LTA exceeded" tax is only paid when you draw something out from that part of the Fund, or reach age 75 or die, whichever comes first. If you're a 40% taxpayer in retirement there would be no difference whether you took lump sums or income - the same tax would be paid either way.
On the other hand, you could simply draw more from the "75% of LTA" part and leave the excess to grow for now. Who knows what rules will apply in future?


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