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Read moreIn The March 2021 Budget the chancellor, Rishi Sunak, announced a five-year freeze to the pensions LifeTime Allowance (LTA)
The LifeTime Allowance (LTA) is the limit to which normal personal tax rates apply to pensions.
Beyond this allowance, currently £1,073,100 in March 2021, excess benefits are taxed at 55% if taken as a lump sum or 25% if taken as income which in the latter case would then be subject to income tax under PAYE.
When the LTA was first introduced in 2006, it was set at £1.5 million, a level which equated to an annual pension income of £75,000, based on a standard legislative assumption of an annuity rate of 5%.
The initial legislation set out increases for the LTA to £1.8 million in 2010/11. That proved to be the SLA’s high watermark. It was frozen in the following year and then the first of three cuts were introduced. By 2016/17 the LTA was down to £1 million.
For three tax years from 2018/19 the LTA has been index-linked, but from April 2021 it will be frozen for 5 years at £1,073,100. Had the original £1,500,000 level been index linked, the SLA would now be £2,082,100 – not far short of double the actual level.
As part of our ongoing six-monthly review process with our clients we shall of course be monitoring their LTA position.
If you are unsure of your position please do get in touch.
Call us now on 0121-355-4455 or email us at appointments@oaklandswealth.com
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