A £1 million pension pot might sound like a luxury reserved for the super-rich. After all, the absolute maximum the Government allows you to build up in a pension is £1.03 million.
Anything above this is taxed at 55% when you take it out.
But research for Money Mail has found many workers whose salaries have risen to about £80,000 are unwittingly breaching the lifetime allowance.
The result is a £70 million jump in pension tax collected by HMRC over the past two years — and the numbers of people caught out is doubling.
Those affected include working professionals & UK pension holders who have a final-salary or defined contribution pensions.
Interestingly however, those who no longer live in the UK, or those choosing to retire abroad, don’t need to be pulled into this trap…
How has the lifetime allowance threshold changed over the years?
As you can see from the above, the LTA has fallen dramatically in the past decade. Effectively the government see UK pensions as an easy tax raid, as you can now pay less in tax free and you are taxed more on your overall holding.
Jeremy Corbyn has notably mentioned he would drop the the LTA to £300,000 if he came in to power…
Many workers with final-salary schemes have no idea their pension is worth anywhere near £1 million (As this is calculated at retirement) so there is a risk they will be caught out and face a huge tax charge.
There are ways of protecting yourself, however what is best for you depends on your situation, so independent advice is important. As mentioned, if you no longer live in the UK (Or are possibly emigrating soon) There is no need for you to pay UK tax with correct structuring.