Guide On Lifetime Allowance|DNS Accountants

Understanding Lifetime Allowance

A Lifetime allowance is a limit or maximum value of pension benefit that an individual can draw from all the registered pension schemes without paying a lifetime allowance tax charge. If an individual take any amount above the personal lifetime allowance as lump sum is taxed at 55%.The lifetime allowance tax charge is paid by pension scheme administrator on behalf of pension scheme holder to HMRC. The basic standard or personal lifetime allowance is £1.0mn for the tax year 2016/17.The lifetime allowance was introduced on April 2006 but not remained at the same level,  

Lifetime Allowance For 2017/18

Lifetime allowance is also known as basic standard or personal lifetime allowance. For the most people, current lifetime allowance is £1.0mn for the tax year 2017/18.Your lifetime allowance depends on how many pension scheme you belong to and type of pension pot you get. Certain types of tax protection that will affect personal lifetime allowance, If an individual has:

•         Fixed protection 2012 the standard lifetime allowance is £1.8mn,
•         Fixed protection 2014 the standard lifetime allowance is £1.5mn,
•         Fixed protection 2016 the standard lifetime allowance is £1.25mn.

From 6 April 2018, the government wants to index the Lifetime Allowance annually in line with the Consumer Prices Index (CPI).

Tax Rates, If You Go Above Your Lifetime Allowance

If the amount of the payouts from the pension pots exceeds the personal lifetime allowance, the rate of tax you pay on any amount above your lifetime allowance depends on how the money is paid to you: if you get it as lump sum, lifetime allowance tax rate would be 55% and if you get it any other way such as retirement income, cash withdrawals, pension payment, the lifetime allowance tax rate would be 25%

Compare change in lifetime allowance since April 2006 to 2018.