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Where Taxpayers and Advisers Meet

Income drawdown on a pension above LTA after death

dominoman
Posts: 48
Joined: Fri Jan 15, 2016 6:41 pm

Income drawdown on a pension above LTA after death

Postby dominoman » Mon Sep 07, 2020 1:43 pm

My father died (aged 73) and his pension was above the LTA. He had fixed his "LTA" at 1.5M a few years back.

1. If I choose income drawndown I understand I pay tax at 25% up front and then at my income tax rate on top. Is that only on the portion of the pension above the 1.5M LTA?
2. Who tracks the portion that I pay tax on? I mean the pension may continue growing so the 1.5M that is not taxed could become 1.6M next year and so on. So do I keep paying tax until it is under 1.5M?
3. Do I have to pay the 25% LTA charge out of the pension? Or can I pay it out of my other income?

Thanks! I'm green but learning.

ben_power
Posts: 28
Joined: Tue Feb 27, 2018 8:34 pm

Re: Income drawdown on a pension above LTA after death

Postby ben_power » Mon Sep 07, 2020 10:30 pm

Hi, first off, I strongly recommend seeking independent financial advice, these things can be complex especially with pensions. Lifetime allowance (LTA) issues, Benefit Crystallisation Events (BCEs). LTA Protection (Fixed Protection 2015 in your fathers case) are all pitfalls. If you're talking about a pot over £1.5m then paying for advice should be a no brainier, don't try to cut corners but this site is certainly a good place to start.

1). Yes however, deepening on your own marginal rate of tax you can choose to take the excess as a lump sum and pay tax at 55%. For example, if your already a higher rate tax payer then drawing the excess as income would mean you'd be paying 'more' tax.
2). Typically the provider does, they will record the draw-down and report this to HMRC along with the LTA usage (as a %). Another reason most providers will/should insist upon you receiving advice from a qualified adviser. If you fully crystallise the pension then any additional withdrawals above the LTA will also incur further LTA charges.
3). From within the pension pot only.

I hope this helps, please do not rely on this as advice, only guidance.


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