RPSM11101110 - Technical Pages: Lifetime Allowance: Level of lifetime allowance: Example of how the lifetime allowance enhancement factor is applied

Lisa transferred £300,000 into a registered pension scheme from a recognised overseas pension scheme in the 2006/07 tax year and is entitled to a lifetime allowance enhancement factor (or recognised overseas scheme transfer factor) of 0.2. This is calculated on the basis of a standard lifetime allowance at that time of £1.5 million.

This fact is notified to HMRC, who provide Lisa with a certificate that confirms this level of entitlement.

Lisa draws benefits under the scheme in 2008/09 (when the standard lifetime allowance is £1.65 million). Lisa’s lifetime allowance at that point is £1.65m + (£1.65m x 0.2), giving Lisa a lifetime allowance of £1.98 million at that time.

Lisa holds benefits under 2 other registered pension scheme. She draws benefits from one of these in the 2010/11 tax year when the standard lifetime allowance is £1.8 million. Lisa’s lifetime allowance at that point is therefore £1.8m + (£1.8m x 0.2), giving Lisa a lifetime allowance of £2.16 million at that time. This figure is used to calculate her available lifetime allowance at that point (taking into account the amounts that Lisa has crystallised previously at earlier BCEs).

Lisa takes benefits from the third scheme in the 2012/13 tax year when the standard lifetime allowance is £1.5 million. Lisa’s lifetime allowance at that point is therefore £1.5m + (£1.8m x 0.2), giving Lisa a lifetime allowance of £1.86 million in that tax year. This figure is used to calculate her available lifetime allowance at that point (taking into account the amounts that Lisa has crystallised previously at earlier BCEs)

Alternatively, Lisa’s lifetime allowance developments may be tracked using percentages:

When Lisa becomes entitled to her lifetime allowance enhancement factor of 0.2 her personal lifetime allowance becomes 120% of the standard lifetime allowance and her available lifetime allowance is the same (because she has been subject to no BCEs).

When Lisa draws benefits under the scheme in 2008/09 she crystallises £165,000, or 10% of the standard lifetime allowance at the time. So Lisa’s available lifetime allowance going forward becomes 110% of the standard lifetime allowance.

When Lisa draws benefits from the second registered pension scheme in 2010/11, she crystallises £540,000, or 30% of the standard lifetime allowance at the time. So Lisa’s available lifetime allowance going forward is 80% of the standard lifetime allowance.

When Lisa draws benefits from the third registered pension scheme in 2012/13, she crystallises £300,000, or 20% of the standard lifetime allowance at the time. As Lisa’s enhancement factor arose before 6 April 2012, as explained above, her personal lifetime allowance is £1.86 million, or 124% of the standard lifetime allowance of £1.5 million.

Lisa has now used up a total of 60% of the standard lifetime allowance, so her available lifetime allowance going forward is 64% of the standard lifetime allowance.