LTA

[1nvest]

Relative to just a SIPP, is the LTA a measure of the portfolio value or is it measured against the total amount paid in?

If for instance the pot was worth £1.5M, but that arose out of having paid/saved £500K in total I assume that has the surplus > LTA amount value taxed?

What however if £1.5M had been paid in but the portfolio value was worth only £1M i.e. perhaps poor investment rewards and where a final bad year had seen the portfolio value fall by a third.

TIA

[TUK020]

Relative to just a SIPP, is the LTA a measure of the portfolio value or is it measured against the total amount paid in?

If for instance the pot was worth £1.5M, but that arose out of having paid/saved £500K in total I assume that has the surplus > LTA amount value taxed?

What however if £1.5M had been paid in but the portfolio value was worth only £1M i.e. perhaps poor investment rewards and where a final bad year had seen the portfolio value fall by a third.

TIA

Your portfolio value at the point of crystallisation is measured against the LTA.
You don't have to crystallise it all at once, so you can 'use up' your LTA a chunk at a time, measured in % points.

[1nvest]

Thanks

[OLTB]

Thanks

Just so you're aware, there is a LTA check at age 75 as well. If you still have funds in drawdown at age 75, the value is calculated against the value when it went in to drawdown (after tax-free cash paid). If your drawdown pension value at age 75 is higher than the value that went into drawdown, the difference between the two is what crystallises and tested against any available LTA.

Cheers, OLTB.

[StayinAlive]

Just to be clear on this - my understanding is that if you put an amount into drawdown then that amount is effectively excluded from the final calculation at age 75 by virtue of the fact that you will have been given, or calculated yourself, a percentage of LTA used by that paticular Benefit Crystallisation Event.
As an example, say I put 500K into drawdown some time ago. As I have a protected LTA of 1.5m, that represented 33% of LTA used. So, as long as the value of my SIPP, excluding that drawdown, at age 75 is less that 1m (66% of my LTA) that's OK.

[ursaminortaur]

Just to be clear on this - my understanding is that if you put an amount into drawdown then that amount is effectively excluded from the final calculation at age 75 by virtue of the fact that you will have been given, or calculated yourself, a percentage of LTA used by that paticular Benefit Crystallisation Event.
As an example, say I put 500K into drawdown some time ago. As I have a protected LTA of 1.5m, that represented 33% of LTA used. So, as long as the value of my SIPP, excluding that drawdown, at age 75 is less that 1m (66% of my LTA) that's OK.

If you crystallised 500K (taking 25% ie 125K as a tax free lump sum and leaving the rest to grow) then that growth + any remaining uncrystallised amount at age 75 must be less than the 66% unused LTA left (1m )ie

((amount in crystallised pot at age 75) - (amount crystallised - tax free lump sum taken )) + uncrystallised pot at age 75 < 1m

ie

(amount in crystallised pot at age 75) - (375K) + uncrystallised pot at age 75 < 1m

However if you removed that growth via drawing down from the crystallised pot so that all the growth has been removed by age 75 then the only factor to be considered would be remaining uncrystallised pot which would then need to be less than 1m.

[StayinAlive]

Thanks Ursa. So here's the problem.
That 375K was used to buy a 5 year annuity where I took the maximum GAD income and left me with a lump sum circa 300K at the end. I then transferred that into my SIPP as a crystallised drawdown pot. So, do you reckon that, as long as that particular tranche does not grow above 375K, it will not be used in the age 75 test?

[ursaminortaur]

Thanks Ursa. So here's the problem.
That 375K was used to buy a 5 year annuity where I took the maximum GAD income and left me with a lump sum circa 300K at the end. I then transferred that into my SIPP as a crystallised drawdown pot. So, do you reckon that, as long as that particular tranche does not grow above 375K, it will not be used in the age 75 test?

I think that is correct since as far as I can see the purchase of the 5 year annuity will be ignored for LTA purposes with just the initial value crystallised in BCE 1 being used (BCE 6 being the value of any tax free lump sum taken).

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm088640

A short-term annuity contract

The purchase of a short-term annuity from a drawdown pension fund is not a BCE 4 or any other BCE. This is because the initial designation of funds for drawdown pension would have been tested through BCE 1, and the short-term annuity is simply a means of securing the resulting drawdown pension.

Note. This is not a situation I have come across before and I'm not a financial adviser just someone who has done some reading around the subject.