If you have a UK pension fund, and you are living overseas, there are important steps, that you can take, to protect your fund from the UK’s Lifetime Allowance and reduce the amount of UK tax that you could be paying at retirement.
What is the Lifetime Allowance (LTA)?
Essentially, the LTA limits the amount that you can take from UK pension funds without your funds being subject to an additional tax charge. Any pensions funds above the LTA, when benefits are taken (or transferred to QROPS), will be subject to a LTA Charge.
Anyone who has a UK pension fund that is likely to be valued more than £1M (the LTA for 2016/17 tax year), by the time you draw retirement benefits, will need to take action, to reduce (or potentially avoid completely) the tax due on any excess over the LTA.
How can I protect my UK pension funds?
There are two types of transitional protection available: Fixed Protection 2016 and Individual Protection 2016.
Fixed Protection 2016 (FP2016) is available to anyone regardless of the current value of their pension benefits. FP2016 offers a protected LTA of £1.25M (rather than the current LTA of £1M).
It costs nothing to protect your funds under FP2016, and although you may consider your funds someway short of £1M at present, accumulate fund growth over several years or a considerable swing in the exchange rate (if you are holding or intend to hold UK pension funds in a foreign currency) could push your UK pension fund value beyond £1M by the time you consider retiring.
It is important to note that FP2016 will be lost if you make additional contributions to your UK pension scheme (from 5th April 2016). However, if you have been living overseas since this time, it is unlikely that you would be making any further UK pension contributions.
Individual Protection 2016 (IP2016) is only available to you if your pension benefits were valued in excess of the LTA of £1M as of 5th April 2016. A successful application for IP2016 will give you a Personalised Lifetime Allowance (PLA), based on the value of your pension benefits and capped at £1.25M. For example, if your pension benefits are valued at £1.15m, your PLA will be £1.15M. If your benefits are valued at £1.25m or above, your PLA will be £1.25M
Unlike FP2016, the benefit of IP2016 is that you may continue to make pension contributions after 5th April 2016 without losing the protection – but, as previously stated, you only qualify for IP2016 if your funds were already in excess of £1M at 5th April 2016.
Important Deadline for Individual Protection 2014
Did you have total pension savings that exceeded £1.25M, on 5th April 2014? If you did you have a deadline of 5th April 2017 to be able to apply to Her Majesty’s Revenue & Customs (HMRC) for protection under the Individual Protection 2014 (IP2014) – or your pension funds will be subject to the reduced Lifetime Allowance.
Please contact bdhSterling today online or by phone on +44 1372 724 249 (UK) or +61 3 8631 0477 (Aus) to discuss protecting your UK pension funds against the LTA.