RPSM11201020 - Member Pages: Lifetime allowance: Tax consequences: Benefits above the lifetime allowance

What happens if the member receives benefits in excess of the lifetime allowance? What are the tax consequences?

Any amount paid over the members lifetime allowance will be subject to the lifetime allowance charge. The purpose of the charge is to recover tax reliefs the fund has benefited from over the years, both on the initial contributions and on tax free build up of the underlying investments over the years

There are two circumstances when this can happen

The chargeable amount is always the gross value of the benefits that exceed the lifetime allowance

The lifetime allowance charge is levied at two rates 25% or 55%, which charge applies will depend upon how the benefits have been taken see RPSM11105080 for more details.

It may be that the scheme administrator is reducing the benefits to pay the lifetime allowance charge. And it may be that the amount of the lifetime allowance tax charge paid by the scheme administrator may itself be added to the chargeable amount upon which the tax charge is based. Examples of how this works for a lifetime annuity are given in RPSM11105220 and for a scheme pension in RPSM11105230.