Impact of the UK’s reduced lifetime pension allowance as an emigrant


Impact of the UK’s reduced lifetime pension allowance as an emigrant

13:10 24 April in Blog

Don’t let the reduced UK Lifetime Allowance catch you out as a UK emigrant or expat.

The UK Lifetime Allowance (‘LTA’) puts a cap on the amount of pension benefits which can be drawn from a UK pension scheme over your lifetime without triggering an additional tax charge from the UK. The LTA is £1 million, but proposed to increase in line with the UK Consumer Prices Index from 6 April 2018.

The value of your UK pension measured against the LTA is determined when a Benefit Crystallisation Event (‘BCE’) occurs – ie when benefits are drawn or should you die prior to taking any benefits. If you have not drawn your UK benefits prior to age 75, a LTA test will be applied at that time on the value of your remaining undrawn benefits.

Note that:

  • A pension transfer abroad will be treated as a BCE event;
  • The value of your UK funds against LTA, is usually not your UK pension transfer value or fund value, when a defined benefit scheme is involved (in these cases, you can exceed the LTA, even if the transfer value of your funds is under £1m).
  • Exceeding the LTA will mean create a taxation surcharge on the excess at either 55% or 25%, prior to any marginal rate tax being applied in your country of residence.

The LTA can significantly impact on the value of your retirement funds and planning is recommended even if your fund is currently well below £1m, so you are not caught out by growth over time.

Prism Xpat has a variety of pension strategies to limit your exposure, in some cases eliminating it altogether. Please contact us for further information.