Lifetime Allowance Print

For individuals with funds (or notional funds) in excess of the lifetime allowance at the date of taking benefits, known as a Benefit Crystallisation Event, (“BCE”) a Lifetime Allowance Charge will be levied at 25% of the excess. Individuals will then be able to take the remaining fund in excess of the lifetime allowance as a lump sum subject to an income tax charge at 40%. This means that the effective rate of tax equates to 55% of the funds in excess of the lifetime allowance. If however, a basic rate taxpayer wishes to take any of the funds in excess of the lifetime allowance as income he will only be taxed at his marginal rate. The Lifetime Allowance has been substantially reduced since April 2012 although from 6 April 2018 it has been index-linked up to April 2021 when the allowance has been frozen until April 2026, as can be seen from the following table:

2013/14 £1,500,000
2014/15 £1,250,000
2015/16 £1,250,000
2016/17 £1,000,000
2017/18 £1,000,000
2018/19 £1,030,000
2019/20 £1,055,000
2020/21 1,073,100
2021/22 1,073,100

As individuals may have already built up savings of more than the lifetime allowance at the time these reductions were implemented, or had planned to do so in the expectation that the lifetime allowance would not be reduced from the then existing level, there are now seven different protection regimes which have been made available over the years.

These are as follows: –

Primary Protection

Enhanced Protection

Fixed Protection 2012

Fixed Protection 2014

Individual Protection 2014

Fixed Protection 2016

Individual Protection 2016

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