Lifetime Allowance Planning with QROPS
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 is currently set at £1 million.
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.
An individual can choose to protect their LTA from 6 April 2016 at the 2015-16 level of £1.25 million by applying for fixed protection 2016 (FP2016).
If an application for FP2016 has been accepted by HMRC, the client will be sent a certificate which they should show to their pension scheme administrator when they take any benefits from the pension scheme.
No further UK tax relieved contributions are permitted once fixed protection has been agreed.
Individual protection 2016 (IP2016) is available for clients whose funds exceeded £1m as of 6 April 2016.
Will give a lifetime allowance equal to the value of pension rights on 6 April 2016 - up to an overall maximum of £1.25 million.
An individual will not lose individual protection 2016 by making further savings in to their pension scheme.
LTA Planning using QROPS
A transfer to QROPS is a Benefit Crystallisation Event (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 benefit crystallisation event 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.
QROPS are available to UK and non-UK residents.
Please see attached a PDF version of this document including a case study.