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23 Jan 2014

Savers Advised To Make Arrangements To Avoid 55% Tax As Lifetime Allowance Introduction Nears

The introduction of a cap on lifetime allowance at £1.25 million is due on 6 April, so pension savers with pension pots over that amount have been advised to arrange matters in such a way as to avoid paying a tax charge of 55% for sums above £1.25 million. Currently the maximum lifetime allowance is £1.5 million and if taken in bulk after 6 April, the pension saver could face a tax charge of £137,500. If taken as income, the tax will be 25%.

The change will have an impact on the savings of a relatively limited number of people, but will include those in professions such as medicine and senior school management, This is Money reported.

The government has provided options of fixed or individual protection for those vulnerable to the change that would let them keep their £1.5 million allowance, but they are advised to seek professional consultation from a financial adviser, especially if they have more than one pension pot, says Alistair Hardie from Standard Life. Savers with multiple pension pots would have to get current valuations for all of them before 6 April, and they would also need to get all the information about what the total amount is to date and how the investments have grown in order to calculate if they are at risk of exceeding the maximum allowance. All this work requires time, so the best moment to start is now, Hardie advises. This will give them sufficient time to choose the best option, fixed or individual protection, or, alternatively, continuing to save and paying the 55% charge.

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