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Govt banks £350m in lifetime allowance charges

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The Government has collected £353m in tax charges paid by people breaking the lifetime allowance limit, leading to renewed calls to scrap the penalty.

A freedom of information request submitted to HMRC by AJ Bell, and seen by Money Marketing, reveals £352,888,336 has been paid between 2006/7 and 2014/15.

The annual take from the measure – a combination of 25 per cent and 55 per cent charges – steadily rose from £9m in 2007/8 to £83m in 2013/14. Although the figure fell slightly in 2014/15, calls to scrap the charge are growing louder.

AJ Bell head of technical resources Gareth James says: “It’s only to be expected that the level of tax raised has increased as the lifetime allowance has fallen.

However, in the context of the economic concerns that recently made the Government consult on wider reforms of pension tax relief, it is questionable whether the amount of tax raised by the lifetime allowance over the last 10 years has been sufficient to justify the complexity that it continues to cause.”

Meldon & Co managing director Mark Meldon says: “It’s a terrifically complex problem to sort out for clients. I have seven clients affected at the moment but the number is going to rocket in the next five years as the babyboomers hit retirement age.

“The whole thing is a nonsense, the lifetime allowance and the annual allowance is a huge  discincentive to financial self-sufficiency.”

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Comments

There are 6 comments at the moment, we would love to hear your opinion too.

  1. It is a huge barrier to effective financial planning for many clients. No longer is the LTA an issue only for the wealthy but it is now impacting young middle income earners who aspire to be successful. The LTA has become a penalty on investment growth for many.

    With the reduced AA and the introduction of tapering, the LTA has outlived its initial purpose. What is more, the gulf between money purchase benefits (private sector) and Defined benefits (public sector) has also been exacerbated by the falling LTA.

    Time for Osborne to grasp the nettle!

  2. Maybe they could use a small part of it to fund a pension advisory service? Thought not, OPM tastes better!

  3. Couldn’t agree more with Mark Meldon’s comments. This has become typical of Osborne’s handling of most things – tax first, ask question’s later!

  4. Colin Fergusson 23rd April 2016 at 8:16 am

    Sorry but these are rules and people should learn to follow the rules or pay the penalty. Seem like there are a lot of self serving people who already have invested and made use of the generous tax breaks on pension, but want more or have not sort advice to avoid the payments. If you remove the LTA then the result will be reduced tax breaks to avoid abuse and the majority will lose out so the few can benefit.

  5. The reduction in the LTA also has associated hidden costs to the Treasury – for example, I have spoken to a number of senior GPs and Drs who are retiring earlier than they previously intended. The cost of replacing them, by training more (est £500k each), or bringing in contractors (£3.5k per shift), needs to be added into the equation. As they have now slashed the AA from £255k pa to £10k pa for high earners, the Government should quietly drop the LTA altogether. Otherwise we have a big and unfair difference between those who retired pre 2011 and now going forwards.

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