You are here: Home -

Middle earners ‘sleepwalking’ over lifetime allowance threshold

Written by:
An alarming number of people are ‘sleepwalking’ into tax charges for breaching the lifetime allowance on pensions, an expert has warned.

The lifetime allowance – the amount of money you are able to save into a pension without incurring a tax charge – was cut from £1.25m to £1m in April.

But worrying numbers of middle earners, many of whom think they have accumulated far less than £1m, risk receiving an unexpected tax bill.

Mitch Hopkinson, head of advice at deVere United Kingdom, said before seeking out financial advice, as many as two thirds of new clients had been at risk of breaching the reduced lifetime allowance.

He said: “Previously only the highest income earners were likely to be caught out by the LTA threshold.  But thanks to repeated cuts in the value of the allowance – the latest in Chancellor George Osborne’s 2015 Budget, in which it was cut to £1m – middle England is really being hit.  A surprising amount of people simply don’t realise that they could be slapped with a tax bill for breaching the limit.

“£1m sounds like a lot, but when you take into account investment growth, you could find yourself inadvertently going over that threshold a lot easier and sooner than you might think.”

Hopkinson warned members of defined benefit schemes could hit the reduced LTA limit without realising because employers offering these pensions “aren’t always great at providing advice” and employees tend to only review their pots at retirement, at which point they could be hit with “draconian 55% tax rates”.

Defined contribution pension holders are also at risk because they often don’t factor in future growth, he said.

If you reach the LTA threshold how you are taxed will depend on whether you take the excess as a lump sum or as income.

Those who take the extra as a lump sum will pay 55% upfront and the remainder will be paid directly to them. Those who decide to take it as income will pay 25% upfront and the remainder is put into the rest of the fund, which is taxed at marginal rates.

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

YBS launches best buy regular savings account

Yorkshire Building Society’s Loyalty Regular Saver pays interest of 3.5%, with savers able to deposit up to £5...
YBS launches best buy regular savings account

Leaseholders consider bankruptcy after MP vote

A plan to protect leaseholders from extortionate costs of fixing fire safety problems has been rejected in par...
Leaseholders consider bankruptcy after MP vote

Lockdown easing roadmap: the key dates for you

The Prime Minister Boris Johnson has outlined his roadmap for the nation coming out of lockdown, with the ambi...
Lockdown easing roadmap: the key dates for you

Ryanair jetting towards US flights for £10

Ryanair is on course to achieve its long-held ambition of offering transatlantic flights to the US – and the...

Investing in car parks: a good vehicle for income seekers?

As the search for income continues, many investors are turning to alternatives, with car parks becoming increa...

A quick guide to guarantor loans – in association with Guarantor Loan Comparison

Considering a guarantor loan or becoming a guarantor yourself? Read our essential guide...

Results round-up: Companies to watch this week

Mulberry and more will face the music this week.

Product launches of the week

Select Property Group, Schroders, Leeds Building Society and more have exciting news this week.

Money Tips of the Week

Read previous post:
lady looking into estate agent window
Lettings agents see rise in landlords selling-up

Letting agents have reported a slight rise in the number of landlords selling their buy-to-let properties in March, the first...