RPSM03102030 - Technical Pages: Protecting pre 6/4/06 pension rights from tax charges: Primary protection: Taking benefits at different times
Protection from the lifetime allowance charge - taking benefits at different times
Where an individual takes benefits at different times the balance of the personal lifetime allowance will be indexed at the same rate that the standard lifetime allowance has been indexed.
Example
Jacob had £3 million of pension rights protected under primary protection on 5 April 2006, giving an additional lifetime allowance factor of 1.
He took benefits worth £1.8 million in 2011 when the standard lifetime allowance was £1.8 million. At that time, Jacob’s primary protection was worth £3.6 million (standard lifetime allowance of £1.8 million plus additional lifetime allowance factor of £1.8 million). So Jacob used up 50% of his personal lifetime allowance.
In 2014 Jacob took the rest of his benefits that were worth £2 million. The standard lifetime allowance (SLA) in 2014 is say £1.5 million. Jacob’s primary protection was then worth £3.6 million (£1.8 million plus a factor of 1). See RPSM03102020 for how Jacob’s primary protection is calculated.
The amount of lifetime allowance used up by Jacob’s previous benefit crystallisation is found by multiplying the amount of that BCE (£1.8 million) by the formula
SLA at time of current (2014) BCE/SLA at time of previous (2011) BCE
Where SLA is the standard lifetime allowance. So,
£1.8 million x (£1.5 million/£1.8 million) = £1.5 million.
Jacob has used up £1.5 million lifetime allowance so has £2.1 million available. In taking £2 million Jacob has no lifetime allowance charge to pay. This is because the amount taken is within the amount of protection still available to him.
In describing how the individual gets a lifetime allowance that is greater than the standard lifetime allowance, it has been assumed that the individual’s rights when valued were within “HMRC limits”. The valuation section of this guidance at RPSM03101510 explains how onlyrights valued on 5 April 2006 within “HMRC limits” can be taken into primary protection.
| Glossary (RPSM20000000) |
