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YALTAQ (yet another LTA question)

mc2fool
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YALTAQ (yet another LTA question)

#469727

Postby mc2fool » January 2nd, 2022, 3:26 pm

My only non-state pension is a SIPP that I have never taken money out of and (hopefully) never will, my intention (fingers crossed) being to leave the whole of it to charity when I finally shuffle off this mortal coil.

It is far off the LTA limit currently, although I suppose it could breach it in future if, in decreasing order of probability; (a) the govt lowers the limit, and/or (b) I make average investments but live long enough for the gains to compound up to and exceed the limit, and/or (c) I suddenly become a whizzo genius investor. :o :D

I've been kinda assuming (always a bad idea, really) that if everything goes to plan and I pop my clogs with the SIPP untouched then, irrespective of how old I am when I die, and irrespective of whether it's over the LTA limit or not, there will be no taxes and the charity(ies) will get the full gross value of the SIPP. Yes? :?

If it's relevant, I'm not yet 75, got a few years to go....

MyNameIsUrl
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Re: YALTAQ (yet another LTA question)

#469739

Postby MyNameIsUrl » January 2nd, 2022, 4:46 pm

If you haven't made any contributions since (I think) 2016 I suggest you investigate getting 'fixed protection 2016' which could raise your limit to 1,250,000 from 1,073,100. It costs nothing, is simple to do (once you've done the necessary reading), and gives you more of a buffer if things do go well with your investments. Google 'fixed protection 2016' for further information

mc2fool
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Re: YALTAQ (yet another LTA question)

#469759

Postby mc2fool » January 2nd, 2022, 6:06 pm

MyNameIsUrl wrote:If you haven't made any contributions since (I think) 2016 I suggest you investigate getting 'fixed protection 2016' which could raise your limit to 1,250,000 from 1,073,100. It costs nothing, is simple to do (once you've done the necessary reading), and gives you more of a buffer if things do go well with your investments. Google 'fixed protection 2016' for further information

Thanks, but the SIPP was created in 2018 from a transfer from a DB scheme (the only one I had), and I've made the de minimis £2,880 net contribution every year since... ho hum :)

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Re: YALTAQ (yet another LTA question)

#469806

Postby ursaminortaur » January 2nd, 2022, 10:44 pm

mc2fool wrote:My only non-state pension is a SIPP that I have never taken money out of and (hopefully) never will, my intention (fingers crossed) being to leave the whole of it to charity when I finally shuffle off this mortal coil.

It is far off the LTA limit currently, although I suppose it could breach it in future if, in decreasing order of probability; (a) the govt lowers the limit, and/or (b) I make average investments but live long enough for the gains to compound up to and exceed the limit, and/or (c) I suddenly become a whizzo genius investor. :o :D

I've been kinda assuming (always a bad idea, really) that if everything goes to plan and I pop my clogs with the SIPP untouched then, irrespective of how old I am when I die, and irrespective of whether it's over the LTA limit or not, there will be no taxes and the charity(ies) will get the full gross value of the SIPP. Yes? :?

If it's relevant, I'm not yet 75, got a few years to go....


If you have dependants the charity will be charged a special lump sum death benefit charge rate of 45%. If not it will be tax free. If you die before reaching 75 no LTA test will be carried out. However if you live to age 75 the normal age 75 test on uncrystallised funds will occur and 25% of any excess will be taken as an LTA excess charge.

https://www.ftadviser.com/pensions/2021/07/06/how-to-make-a-charitable-donation-from-a-pension/?page=3

Charities can be the recipients of an authorised lump sum death benefit payment from a pension scheme. If the member was aged 75 or over when they died, or if the member was under 75 but the payment was not designated until more than two years after the date the scheme were aware of (or should reasonably have been aware of) the member’s death, the payment will be taxable. As a charity is set up as either a trust or a company, it is a non-qualifying person, and tax will be charged at the special lump sum death benefit charge rate of 45%.

However, if certain conditions are met the lump sum may be paid as a charity lump sum death benefit. A charity lump sum death benefit is paid tax free, so the special lump sum death benefit charge does not apply.

A charity lump sum death benefit may only be paid from money purchase arrangements. It can be paid following the death of a member of a money purchase arrangement where:

there are no dependants of the member; and

the member has nominated the charity as a beneficiary

If the member leaves no dependants, but has not nominated a charity, a lump sum cannot be paid as a charity lump sum death benefit. The lump sum also will not qualify if the member has nominated a charity but there is a living dependant.
.
.
.
Since 6 April 2016, it has been possible for charity lump sum death benefits to be paid from both uncrystallised funds and funds which have been designated to drawdown. Prior to this, a charity lump sum death benefit could only be paid from uncrystallised funds if the member was aged 75 or older when they died.

Importantly, if death occurs before age 75, payment of a charity lump sum death benefit is not a benefit crystallisation event. Any part of the deceased’s pension paid as a charity lump sum death benefit therefore will not be tested against the lifetime allowance. This could be useful if the member expects to have funds which would cause their lifetime allowance to be exceeded.

mc2fool
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Re: YALTAQ (yet another LTA question)

#469910

Postby mc2fool » January 3rd, 2022, 12:52 pm

ursaminortaur wrote:
mc2fool wrote:My only non-state pension is a SIPP that I have never taken money out of and (hopefully) never will, my intention (fingers crossed) being to leave the whole of it to charity when I finally shuffle off this mortal coil.

It is far off the LTA limit currently, although I suppose it could breach it in future if, in decreasing order of probability; (a) the govt lowers the limit, and/or (b) I make average investments but live long enough for the gains to compound up to and exceed the limit, and/or (c) I suddenly become a whizzo genius investor. :o :D

I've been kinda assuming (always a bad idea, really) that if everything goes to plan and I pop my clogs with the SIPP untouched then, irrespective of how old I am when I die, and irrespective of whether it's over the LTA limit or not, there will be no taxes and the charity(ies) will get the full gross value of the SIPP. Yes? :?

If it's relevant, I'm not yet 75, got a few years to go....

If you have dependants the charity will be charged a special lump sum death benefit charge rate of 45%. If not it will be tax free. If you die before reaching 75 no LTA test will be carried out. However if you live to age 75 the normal age 75 test on uncrystallised funds will occur and 25% of any excess will be taken as an LTA excess charge.

Thanks! More complex that I thought it should be, and the whole section is now PDF'd and saved, as I'm probably going to forget the details! :D

A quick and probably beginner's question, as I've not paid much attention to the LTA discussions so far (being far away from the LTA limit and still a way to go to 75) ... so, on my 75th birthday my SIPP provider will whip away 25% of its value above the LTA limit and hand it directly to HMRC?

I don't have any dependents, so that's good from the tax point of view, but I do find the logic bizarre ... the charity is penalised 45% of your (whole) donation if you happen to have dependents?!? And then only if you're over 75 when you die? Uh? Giving to charity should be (a) simple and (b) tax free, IMO!

It does sound like in some situations you (or rather, the charity) would be better off if you just withdrew funds from the pension and donated it to the charity, using gift aid and claiming tax relief, while you were still alive.

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Re: YALTAQ (yet another LTA question)

#469926

Postby ursaminortaur » January 3rd, 2022, 1:32 pm

mc2fool wrote:
ursaminortaur wrote:
mc2fool wrote:My only non-state pension is a SIPP that I have never taken money out of and (hopefully) never will, my intention (fingers crossed) being to leave the whole of it to charity when I finally shuffle off this mortal coil.

It is far off the LTA limit currently, although I suppose it could breach it in future if, in decreasing order of probability; (a) the govt lowers the limit, and/or (b) I make average investments but live long enough for the gains to compound up to and exceed the limit, and/or (c) I suddenly become a whizzo genius investor. :o :D

I've been kinda assuming (always a bad idea, really) that if everything goes to plan and I pop my clogs with the SIPP untouched then, irrespective of how old I am when I die, and irrespective of whether it's over the LTA limit or not, there will be no taxes and the charity(ies) will get the full gross value of the SIPP. Yes? :?

If it's relevant, I'm not yet 75, got a few years to go....

If you have dependants the charity will be charged a special lump sum death benefit charge rate of 45%. If not it will be tax free. If you die before reaching 75 no LTA test will be carried out. However if you live to age 75 the normal age 75 test on uncrystallised funds will occur and 25% of any excess will be taken as an LTA excess charge.

Thanks! More complex that I thought it should be, and the whole section is now PDF'd and saved, as I'm probably going to forget the details! :D

A quick and probably beginner's question, as I've not paid much attention to the LTA discussions so far (being far away from the LTA limit and still a way to go to 75) ... so, on my 75th birthday my SIPP provider will whip away 25% of its value above the LTA limit and hand it directly to HMRC?


If you incur a BCE triggering an LTA test before age 75 and exceed the LTA limit then you have a choice of either taking the whole of the excess as a lump sum but paying a 55% charge on it or leaving it for later drawdown but suffering a 25% charge ( if when you draw it down you are a 40% tax payer then together with the 25% charge that makes the total paid 55% the same as if you had taken it as lump sum). Once you reach 75 they no longer allow you to take the excess as a lump sum so instead you have to pay the 25% charge.

https://techzone.abrdn.com/public/pensions/Guide-pension-lifetime-allowance#anchor_10

The chargeable amount is the amount crystallising over the available LTA.

There are two rates of LTA tax charge, and which one applies depends on how the excess is paid.

If it's paid as a lump sum (known as a lifetime allowance excess lump sum), an immediate LTA tax charge of 55% is deducted before it's paid out. It's only possible to pay a lifetime allowance excess lump sum where the scheme rules allow it and the BCE occurs before age 75.
If it's used to provide a pension, an immediate LTA tax charge of 25% applies to the excess. Any pension paid will also be subject to income tax at the individual's appropriate rate. If the funds are to be used for income drawdown, no income tax is deducted until funds are withdrawn from the scheme.

For a higher rate taxpayer, the combined effect of a 25% LTA tax charge and income tax at 40% on the pension income equates to an overall tax charge of 55%. This effective rate would be lower or higher if the individual gets taxed on income at a different rate.

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Re: YALTAQ (yet another LTA question)

#469929

Postby mc2fool » January 3rd, 2022, 1:51 pm

ursaminortaur wrote:
mc2fool wrote:A quick and probably beginner's question, as I've not paid much attention to the LTA discussions so far (being far away from the LTA limit and still a way to go to 75) ... so, on my 75th birthday my SIPP provider will whip away 25% of its value above the LTA limit and hand it directly to HMRC?

If you incur a BCE triggering an LTA test before age 75 and exceed the LTA limit then you have a choice of either taking the whole of the excess as a lump sum but paying a 55% charge on it or leaving it for later drawdown but suffering a 25% charge ( if when you draw it down you are a 40% tax payer then together with the 25% charge that makes the total paid 55% the same as if you had taken it as lump sum). Once you reach 75 they no longer allow you to take the excess as a lump sum so instead you have to pay the 25% charge.

https://techzone.abrdn.com/public/pensions/Guide-pension-lifetime-allowance#anchor_10

The chargeable amount is the amount crystallising over the available LTA.

There are two rates of LTA tax charge, and which one applies depends on how the excess is paid.

If it's paid as a lump sum (known as a lifetime allowance excess lump sum), an immediate LTA tax charge of 55% is deducted before it's paid out. It's only possible to pay a lifetime allowance excess lump sum where the scheme rules allow it and the BCE occurs before age 75.
If it's used to provide a pension, an immediate LTA tax charge of 25% applies to the excess. Any pension paid will also be subject to income tax at the individual's appropriate rate. If the funds are to be used for income drawdown, no income tax is deducted until funds are withdrawn from the scheme.

For a higher rate taxpayer, the combined effect of a 25% LTA tax charge and income tax at 40% on the pension income equates to an overall tax charge of 55%. This effective rate would be lower or higher if the individual gets taxed on income at a different rate.

Woah! More complexity for what I thought would be a yes/no answer! :o

Earlier in your link it says, "When an individual reaches age 75, any pensions that are still uncrystallised at that point will be tested against their available LTA. If there is insufficient LTA, then the LTA charge of 25% will be levied on the excess."

So, if I've never taken anything out of my SIPP, then on my 75th birthday my SIPP provider will whip away 25% of its value above the LTA limit and hand it directly to HMRC, yes? Or does the 25 % LTA charge levied on the excess get to HMRC by some other route? Or is taken at some other time?

ursaminortaur
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Re: YALTAQ (yet another LTA question)

#469943

Postby ursaminortaur » January 3rd, 2022, 2:52 pm

mc2fool wrote:
ursaminortaur wrote:
mc2fool wrote:A quick and probably beginner's question, as I've not paid much attention to the LTA discussions so far (being far away from the LTA limit and still a way to go to 75) ... so, on my 75th birthday my SIPP provider will whip away 25% of its value above the LTA limit and hand it directly to HMRC?

If you incur a BCE triggering an LTA test before age 75 and exceed the LTA limit then you have a choice of either taking the whole of the excess as a lump sum but paying a 55% charge on it or leaving it for later drawdown but suffering a 25% charge ( if when you draw it down you are a 40% tax payer then together with the 25% charge that makes the total paid 55% the same as if you had taken it as lump sum). Once you reach 75 they no longer allow you to take the excess as a lump sum so instead you have to pay the 25% charge.

https://techzone.abrdn.com/public/pensions/Guide-pension-lifetime-allowance#anchor_10

The chargeable amount is the amount crystallising over the available LTA.

There are two rates of LTA tax charge, and which one applies depends on how the excess is paid.

If it's paid as a lump sum (known as a lifetime allowance excess lump sum), an immediate LTA tax charge of 55% is deducted before it's paid out. It's only possible to pay a lifetime allowance excess lump sum where the scheme rules allow it and the BCE occurs before age 75.
If it's used to provide a pension, an immediate LTA tax charge of 25% applies to the excess. Any pension paid will also be subject to income tax at the individual's appropriate rate. If the funds are to be used for income drawdown, no income tax is deducted until funds are withdrawn from the scheme.

For a higher rate taxpayer, the combined effect of a 25% LTA tax charge and income tax at 40% on the pension income equates to an overall tax charge of 55%. This effective rate would be lower or higher if the individual gets taxed on income at a different rate.

Woah! More complexity for what I thought would be a yes/no answer! :o

Earlier in your link it says, "When an individual reaches age 75, any pensions that are still uncrystallised at that point will be tested against their available LTA. If there is insufficient LTA, then the LTA charge of 25% will be levied on the excess."

So, if I've never taken anything out of my SIPP, then on my 75th birthday my SIPP provider will whip away 25% of its value above the LTA limit and hand it directly to HMRC, yes? Or does the 25 % LTA charge levied on the excess get to HMRC by some other route? Or is taken at some other time?


I'm not familiar with the exact process but from the link above it would appear to be immediate.


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