UK Pension Tax Changes 6th April 2016 (lifetime allowance)
Anyone who has a private or company pension in the UK could be affected by the changes being brought in on the 6th April this year. This may be anyone with private pension(s) whose combined value is around £1,000,000, or a company pension scheme which would give an income in retirement of approximately £40,000 per annum.
In essence, the changes affect the tax you would pay on this money. Up until now, any pensions combined under £1,250,000 in real value would not be subject to any further taxes than those of normal income or inheritance tax. However, any pension with a value higher than this would be subject to additional taxes. This allowance is called a ‘Lifetime Allowance’ (LTA). The tax on pensions over this value can be up to 55%.
As from April this year, this Lifetime Allowance Value is being reduced to £1,000,000. Therefore, any pensions combined worth more than this would now be liable to these potentially additional taxes.
If you have a Corporate, Company, Final Salary or Defined Benefits Scheme this will also be tested against the new Lifetime Allowance. These Schemes are based on your final salary when leaving your employer as opposed to contributions and investment growth, and the amount usually has to be multiplied by a factor of 20 in order to calculate the capital equivalent value. These Schemes also usually pay a tax-free lump sum, and this also has to be included in the LTA calculation. Therefore, depending on the pension(s) this new limit may affect you.
What are the key factors involved in the Lifetime Allowance testing?
Retirement after age 55: Once a lump sum/income is taken from a Pension, these are tested against the LTA.
At age 75: Any Pensions that have not been accessed will be tested against the LTA at this time. Pensions in drawdown will also be tested again at this time.
Death pre-age 75: Pensions will be tested against the LTA to ensure that the limit has not been exceeded.
Transfer to a QROPS (Qualifying Recognised Overseas Pension Scheme – when you transfer your pension outside of the UK): If a UK Pension Scheme’s funds are transferred into a QROPS, the value of the transferred funds are tested against the LTA.
Of course, the main point here for many people is death before age 75. If this happens, as is stands your pension will be subject to this potential tax from £1,000,000 and above.
What are the tax charges?
If the Lifetime Allowance is exceeded, then the tax charges will depend on how the excess is paid from the Scheme.
If as a lump sum (normally the case in inheritance): subject to a 55% tax charge.
If as a Pension Income: subject to a 25% tax charge.
Transfer to a QROPS: subject to a 25% tax charge on the excess above the LTA.
Is there any protection against Lifetime Allowance charges available?
The UK Government has confirmed that from April 2016, the following two protection regimes will be available, allowing individuals a fixed or individual LTA dependent on the value of their Pensions and/or the type of protection:
Fixed protection 2016: This ‘fixes’ the LTA at the current £1.25m. In order for this to apply, no further Pension benefits can be accrued in a Scheme on or after 6 April 2016.
Individual protection 2016: The LTA will be set at the value of the Pension on 6 April 2016, when the new £1m LTA is introduced, so long as it is valued between £1m and £1.25m. This protection does allow further contributions, but any Pension in excess of the protected LTA will be taxed on the usual way when tested.
What about a transfer to a QROPS/Overseas pension scheme?
This currently enables an individual to safeguard their Pension Fund against this tax charge and allows the fund to carry on growing. As detailed above, the fund is tested against the individual’s Lifetime Allowance at the point of transfer, rather than at the point of each pension being tested as per above scenarios, i.e. death before pension accessed etc.
Perhaps the most important information to know regarding this, is that not so long ago the Lifetime Allowance for pensions was £1,800,000 in the UK. It is consistently reducing, which is worrying considering every twenty four years historically inflation doubles, and yet the Pension Lifetime Allowance is dramatically being reduced instead of increased, such as the tax bandings for income tax have been after years of lobbying by the general public. This could lead us to one main conclusion, the UK governments’ need to collect more and more taxes. Therefore, as the years pass by it could be this differential continues to grow and grow, in real terms meaning individuals will pay more and more tax.
The key points to consider with this are:
Having your pension(s) in the UK will enable them to be liable to the UK rules and the government’s ability to change them, including the uncertainty of what these changes may be in the future.
The Lifetime Allowance is consistently decreasing, meaning taxes are consistently increasing.
Understanding of these changes and how it might affect you could save you or your loved ones considerable money in potential taxes.
If you have no plans to retire in the UK and have pensions there, it could be worth having these evaluated to see whether it would be beneficial for you to transfer them securely outside of the UK.
Talking your personal circumstances through will put your mind at rest, or enlighten you on what your options are and how you can best plan for this eventuality.
If you would like to ask any questions regarding this subject, or speak to Christopher, a UK pensions expert who wrote this article, feel free to contact him on the details below.
The UK referendum on the EU – Lose your vote or use it!
In the words of Edmund Burke, “The only thing necessary for the triumph of evil is for good men, to do nothing.”
For the sake of equality I will add women as well! But, perhaps this is the greatest test of democracy that my generation has faced, and some of us, either through neglect or lack of knowledge, do not realise what we can do, as expat individuals. To simplify matters, detailed below are the facts. It is up to each individual to take the required action. I am including links to the relevant websites so you can get the full details if you require.
From the Electoral Commission’s website, it clearly states that British citizens living abroad for more than 15 years are not eligible to register to vote in UK elections.
On the aboutmyvote.co.uk website it states that registered overseas voters will be able to vote in the upcoming referendum on the UK’s membership of the European Union. The date of the referendum has not been announced yet but it is scheduled to happen before the end of 2017.”
If you visit www.gov.uk/voting-when-abroad, this site gives clear guidelines on how to register your vote as an overseas voter under British Citizens moving abroad, provided that this is done within 15 years of leaving the UK.
Alternatively, one can register on the following site. It only takes 5 minutes, but you will need your old address including post code, passport number and National Insurance number.
Renewing you registration will then need an Annual Declaration. This is based on the Electoral Commission document dated March 2010 and can be viewed as below. The specific section is;
“2.21 Consequently, entries may be made or registration renewed after the end of the 15-year period where the applicant meets the application deadline as set out above. Accepted applications last for a full 12 months in all cases unless: they have been cancelled by the elector; the elector is added as an ordinary Parliamentary elector or in pursuance of a declaration other than as an overseas elector; or it is found that the elector should never have been registered through the above procedures (i.e. as a result of an objection or review).”
For those that are less fortunate than myself and many others, an alternative for those that do not qualify can register their protest on the following website;
This is not only about us as individuals, but about the freedom of choice for our children and grandchildren.
Do not waste your voice !
Queen Elizabeth II becomes longest reigning British monarch
Congratulations to HRH Queen Elizabeth II who, today on September 9th 2015, becomes the longest serving monarch in British history, beating the record set by her great-great-grandmother Queen Victoria. The exact time that she will set this new record is not known because her father King George VI passed away in his sleep in the early hours of February 6th, 1952.
Our 89 year old queen, who has been our monarch for an amazing 63 years and 7 months, will spend the day on official duties in Scotland and has reportedly said “she doesn’t want a fuss”. There will be a salute along the River Thames with a flotilla of historical vessels taking part in a procession between Tower Bridge and the Houses of Parliament. Business at The House of Commons will also be postponed by 30mins so that MP’s, lead by Prime Minister David Cameron, can pay tribute.
Congratulations Your Majesty on 23,226 days of reign!