Each of life’s mile-stones has tax implications; marriage, having children, going to university, closing the family business, retiring and finally meeting one’s maker. Last week we had advice relevant to three of those occasions; winding-up the company, drawing benefits from pension fund, and supporting a student through university.

This is an
extract from our topical tax tips newsletter dated 25 August
2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

Lifetime allowance protection 
The pensions lifetime allowance reduced to £1m from £1.25m on 6 April 2016. This threshold is tested when an individual starts to take their pension benefits. If the pension fund value exceeds the lifetime allowance this triggers a tax charge of 55% on the excess value taken (where those benefits are taken as a lump sum) or a tax charge of 25% in other circumstances. 

Clients who have retired since 5 April 2016, or expect to do so shortly, need to assess whether their pension pots exceed £1m. An expert pension valuation from a qualified IFA may be required to do this. 

Where the total value of their pension funds does exceed £1m the individual should consider applying for fixed protection 2016 (FP2016) or individual protection 2016 (IP2016). These protections fix their lifetime allowance at the lower of their pensions value at 5 April 2016 and £1.25m. The application for either type of fixed protection must be done online, and it is not clear whether an agent can do this on behalf of a client. 

You may be surprised at how many of your clients have built up total pension funds of £1m or more, as that total can be easily achieved by making regular pension contributions over 30 to 40 years. If you do not advise your clients about the possibility of applying for fixed protection, and they suffer an unnecessary tax charge at 55%, they will not thank you for your silence.
This is an
extract from our topical tax tips newsletter dated 25 August
2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

The
full newsletter contained the remainder of this item plus links to related source material and the
other two topical, timely and commercial tax tips. We’ve been
publishing this newsletter weekly since 2007; it’s clearly written
and focused on precisely what accountants in general practice need to
know about each week.
You can obtain future issues by registering here>>>