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Lifetime allowance tax take triples after threshold cut

Tax thumbnailSavers who breached the lifetime allowance paid a third more in tax bills last year, new figures show.

Those who pass the £1.03m ceiling can be charged up to 55 per cent, and according to a freedom of information request to HM Revenue & Customs, taxes related to LTA breaches nearly trebled to £110m in 2016/2017, from £40m in 2014/2015.

The number of individuals who breached the allowance limit more than doubled from 1,020 to 2,410.

The LTA has seen a number of cuts since 2014, falling to £1.25m from £1.5m in 2014/2015 and to £1.03m in 2016/2017.

Retirement Advantage pensions technical director Andrew Tully, who submitted the FOI request, says the new figures paint “a stark picture” of the impact of the lifetime allowance on savers.

He says: “There is an obvious link to make between the increase in tax take and the slashing of the lifetime allowance. It seems clear this is just the start, and the government’s tax take from the lifetime allowance will continue to grow substantially in future.”

Those who breached the LTA will be taxed a 55 per cent on the amounts exceeding the limits if taken as a lump sum, but the tax will fall to 25 per cent if the excess amount is taken as income.

The number of people facing LTA tax charges levied at 55 per cent for lump sum withdrawals nearly doubled from 360 to 580, the FOI reveals.
Those hit with 25 per cent tax charges trebled from 660 to 1,830 in 2016/2017.

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. This is completely counter productive to the idea that people should save into pensions for their retirement and contrary to previous Govt. attempts (AE) to encorage this.
    If this is the Govt. plan then the annual ISA allowance should be increased to £40,000 and linked to CPI H. A link to inflation was previously promised and of course, reneged upon. (Who can trust Govt. policy?)

    Taxing pension growth at 55% is unforgivable.

  2. Mark Coughlin 2nd May 2018 at 3:40 pm

    We should have a life time allowance for defined benefit schemes and an annual allowance for defined contribution schemes. Neither type should have both.

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