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Where Taxpayers and Advisers Meet

Does an LTA Excess Lump Sum count as Income?

Posts: 1
Joined: Tue Apr 14, 2020 1:07 pm

Does an LTA Excess Lump Sum count as Income?

Postby RichardS-UK » Tue Apr 14, 2020 2:11 pm

I suspect that the answer to this question is "no" but I cannot find a clear answer online.

In brief, for the last few months I have drawn down a regular monthly payment from my LTA-exceeded DC fund. The provider deducts LTA tax at 25% and I pay income tax at 40% upon receipt. However, if I continue to do this during this new tax year, I will start to lose my Personal Allowance as I will exceed £100k adjusted net income. This will push my effective marginal tax rate up to 70%.

I am hoping that if I take an equivalent sum to the 12 monthly payments out as an LTA Excess Lump Sum, then I will just pay 55% tax and my Personal Allowance will be preserved.

If I am correct, I'm surprised that the many websites covering the pros and cons of LTA-exceeded monthly draw down versus lump sum don't seem to mention this issue?


Posts: 27
Joined: Tue Feb 27, 2018 8:34 pm

Re: Does an LTA Excess Lump Sum count as Income?

Postby ben_power » Mon Jul 06, 2020 10:49 pm

As you correctly state, you have 2 choices, draw the excess above the LTA as 'income' which is attractive to a non-taxpayer or basic rate taxpayer as the LTA charge of 25% + your marginal rate of either 0% (up to £12,500 personal allowance) or 20% (£12,500-£50,000) means a maximum tax charge of 45%. The other choice is to take the 'whole' amount above the LTA as a lump sum and pay 55%. You can't draw 'annual lump sums' as this is clearly income paid annually. Nice idea though.

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