The Lifetime Allowance (“LTA”) is a limit set by the UK Government in relation to UK tax relieved savings which can accrue in a UK registered pension scheme (RPS) over an individual’s lifetime.
Any excess over this limit may be subject to an income tax charge of up to 55% (the “LTA Excess Charge”) at the time pensions come into payment, when the member reaches age 75 or at the time of death. The LTA has reduced over successive years and was further reduced to £1,000,000 on the 6th April 2016.
Key considerations and the Dominion Malta International Pension Plan
The LTA Excess Charge can apply in a number of situations, such as when a member of a RPS comes to take benefits (if the value of those benefits at the time they are taken exceeds their available LTA) or at age 75 in respect of members who reach that age without previously taking benefits and their pension fund is over the LTA. Other circumstances may arise where the LTA Excess Charge can apply, and these can be discussed in more detail with our Technical Team.
It is possible to reduce or eliminate future LTA Excess Charges by transferring crystallised or uncrystallised pension funds from a RPS to an overseas pension scheme capable of accepting these types of transfer, such as the Dominion Malta International Pension Plan (the “Plan”). While the transfer to this scheme requires benefits to be tested against the LTA, it is not a registered pension scheme and therefore, is not subject to subsequent LTA testing. This means that future investment growth will not be subject to a potential LTA Excess Charge.
This planning opportunity will be attractive to members who have funds within registered pension schemes which are close in value to the LTA because the transfer of pension funds within a member’s available LTA to a suitable overseas pension scheme is a recognised transfer for UK income tax purposes, regardless of whether the member is resident in the UK.
It is not essential for an individual to be a non-UK resident in order to transfer their pension benefits from a RPS into a suitable overseas pension scheme.
Transferring to the Dominion Plan can reduce or eliminate the LTA Excess Charge, and thus can be an important planning tool for any UK resident member of a RPS who is concerned about LTA issues described above.
Further information on the Dominion Plan and its key advantages and considerations is available on request from a member of our New Business Team. Please use the contact details below should you wish to discuss Lifetime Allowance and overseas pension transfer planning in more detail.