Lifetime Allowance Planning Using QROPS
The Lifetime Allowance (LTA) is the maximum amount of tax relieved pension that can be built up over an individual's life.
The standard lifetime allowance has recently reduced from £1.5 million (for tax year 2013-14) to £1.25 million from tax year 2014-15 onwards. This is set to reduce further, to £1m, from tax year 2015-16. Benefits in excess of the LTA (if paid as a lump sum) are taxed at 55% if paid as a Lump Sum, or 25% if retained to pay benefits. According to HMRC the 2014 reduction to £1.25m meant that 360,000 pension savers are impacted.
An individual could choose to protect their LTA from 6 April 2014 at the 2013-14 level of £1.5 million by applying for fixed protection 2014 (FP2014).
If an application for FP2014 was been accepted by HMRC, the client will have received a certificate to show their pension scheme administrator every time they take any benefits from the pension scheme. Fixed Protection 2016 (FP2016) will be available after April 2016.
No further UK tax relieved contributions are permitted once fixed protection has been agreed.
Will give a lifetime allowance equal to the value of pension rights on 5 April 2014 - up to an overall maximum of £1.5 million. An individual will not lose individual protection 2014 by making further savings in to their pension scheme. Any pension savings in excess of the Lifetime Allowance will be subject to a lifetime allowance charge. Individual protection could be applied for from 6 April 2014.
Legislation for Individual Protection 2016 will be delivered in the Finance Bill 2016.
LTA Planning using QROPS
QROPS are primarily used by Non UK tax residents. Non UK tax residents can use QROPS for LTA planning. QROPS can also be used by UK residents.
A transfer to QROPS is a Benefit Crystallisation Event (BCE) – a transfer to another UK Scheme is not deemed to be a BCE unless benefits or withdrawals are taken at the same time. Under current rules, once the pension funds have been transferred to QROPS they are able to grow without further assessment as regards lifetime allowance limits. If a transfer is not made and a BCE occurs within the UK scheme a lifetime allowance charge would be incurred.
Once the LTA figure has been breached a tax of 55% will be charged on the excess growth surplus at the next BCE. This is a point in the future which is triggered by a change in the pension status.
Please find attached a PDF summary of the benefits of Lifetime Allowance Planning using QROPS, including a Case Study.