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    • Home • Advice • Common questions

    I am lucky/unlucky to be over (slightly) on my pension LTA. When do I have to pay the monster tax?

    13 April 2021

    Question by Colin

    Hello lovely boring team. My question is really simple but cannot seem to find anywhere the answer. I am lucky / unlucky to be over (slightly) on my pension LTA. When do I have to pay the monster tax. Is it when I have spent up to the LTA or is it before.

    Answered by Boring Money

    Hi Colin,

    Some of the best questions are short and to the point. Unfortunately, in this case neither the question or answer is simple at all.

    On 6th April this year the Pensions Lifetime Allowance (LTA) increased to £1,073,100. This is the maximum amount that can be drawn from a UK pension scheme without triggering a tax charge. In terms of when you pay the tax, well it is a myth to think that you pay the tax once the value of your pensions reach the LTA.

    There are various ‘events’ called BCE’s which stands for ‘Benefit Crystallisation Event’ which will trigger an LTA assessment. You only pay an LTA tax charge once your benefits exceed the LTA when a BCE occurs. The tax charge itself is 25% on the excess if benefits taken as income or 55% if benefits taken as a cash lump sum.

    In the main, these happen each time you access your pension benefits, reach age 75 or die before taking the benefits. In total there are 13 different BCE’s which will all trigger a tax charge on the excess over the LTA. I won’t list them all here but I would fully advocate anyone with pension savings projected to be close to or over the LTA to seek and obtain independent financial advice prior to accessing their pension benefits.

    Answered by

    Boring Money

    Here to help you understand your options and make smart money choices.

    Important stuffHolly and the team have worked in the finance industry for many years but we are not regulated to give you personal financial advice. For every story on this website about a good investment, or something which went up by 10% or made someone £200, we could also share a story about a bad investment, something which fell in value or lost someone £200. We aim to provide general information and pointers – and btw we are totally agnostic about which providers you might pick – but if you have complex affairs, want personalised advice or need specific recommendations, please look at advice pages and see if regulated digital or traditional financial advice would be the best solution for your needs. Boring Money Ltd is a limited company registered in England and Wales under registration number 09459832 and we have our registered office at 10 Lower Thames Street, London, England, EC3R 6AF.
    Risk warningAs is always the case with investing, your capital is at risk. The value of your portfolio can go down as well as up and you may get back less than you invest. Tax treatment depends on your individual circumstances and may change in the future.
    Boring Money Ltd is a limited company registered in England and Wales under registration number 09459832 and we have our registered office at 10 Lower Thames Street, London, England, EC3R 6AF.
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