Bypass LTA charge by not designating uncrystallised funds
Nathan
Member
Hey all
Help Appreciated
A client that has already busted his LTA has an additional uncrystallised pension.
My reading suggests that if the client passes away before age 75 and the funds are not designated within two years of death, then the benefits are not tested against the lifetime allowance but will be taxed at the recipients marginal rate of income tax.
Assuming this is right, this means that with some planning, and of course your client sadly passing away before age 75, the beneficiary could reduce the tax charge by 35%.
Please prove me wrong.
Comments
Resolved now
https://www.oldmutualwealth.co.uk/globalassets/knowledge-direct/flowchart-for-informer-09.07.2015.pdf
You'd actually reduce the effective tax charge by 20% (or 50%, depending how you view it!)
Assuming £100,000 over the LTA.
If LTA applies:
BCE5c attracts LTA charge of 25% ie £25,000
Income tax at 20% on residual £75,000 = £15,000
Total tax is £40,000 or 40%
If LTA doesn't apply:
No BCE5c
Income tax at 20% on £100,000 = £20,000
Total tax is £20,000 or 20%