What is the LTA?
The LTA sets a limit on the amount of money that can be taken from a pension scheme – either as regular income or a lump sum – without incurring additional tax liability.
Your LTA pension is linked to inflation so generally rises each year – for the tax year 2019/20 it is set at £1,055,000*.
As such, the pension LTA generally only affects high-net-worth individuals or those with pensions worth in excess of £50,000. Anyone who falls into this category should be aware of the effect that the LTA could have on their expat pension as well as their retirement and legacy planning.
While there is a pension lifetime limit in place, it is possible to avoid recurring LTA penalties. For example, you can attain LTA protection by ceasing contributions, restructuring your finances, or amending your tax residency status. Other possible strategies include transferring a pension to a Self Invested Personal Pension (SIPP) or Qualifying Recognised Overseas Pension Scheme (QROPS). A select few may also be able to apply directly to HMRC for LTA ‘protection’, although this is generally only offered in exceptional circumstances.
It is not possible to rectify LTA pension breaches retroactively; it is essential that you take action before you exceed your pension lifetime limit. Importantly, the fact that the lifetime allowance pensions are inflation-linked means that you may exceed the threshold much sooner than you are prepared for.
Furthermore, because the lifetime allowance pensions account for all accrued non-state pension benefits, including investment growth and compounded interest, if you do not get your sums right it could very quickly ensnare you before you are ready.
LTA pension penalties
If your retirement income exceeds the limit allowed on lifetime allowance pensions, extra tax is payable on any occasion you access your money – a situation known as a “benefit crystallisation event” (BCE).
Tax charges for exceeding the pension lifetime limit across all schemes are as follows:
- 55% for lump sums
- 25% for pension income or cash withdrawals *
Expat LTA Pension Advice from Blacktower FM Wealth Management Specialists
Unfortunately, even expat pensions are subject to the pension LTA; non-UK residents are affected in the same way as those residing in the UK. This means that even residents of EU countries such as Portugal, Spain and France will have to pay UK tax on any qualifying withdrawals and this cannot be claimed back.
If you would like to consider your options when it comes to your UK pension and the LTA, speak to Blacktower FM today about the possibility of finding a suitable tax-efficient and legally compliant solution. We can advise you on the best way to ensure some level of LTA protection, so you can better enjoy your retirement.
Blacktower FM provides personalised and regulated advice so that you can make the most of your expat pension and your long-term financial goals. For more information, contact us today.
* https://www.gov.uk/tax-on-your-private-pension/lifetime-allowance accessed 02-05-19
The information above does not constitute advice and independent advice should be sought before making any changes to your pension planning strategy.
Disclaimer: The above information was correct at the time of preparation and does not constitute investment advice. You should seek advice from a professional regulated adviser before embarking on any financial planning activity.