Tax Rates

Important Pension Allowances Notes

1. The Annual Allowance (AA)

The annual allowance is the maximum amount you and your employer can pay in any one year before incurring a tax charge. There is a tapered reduction in the annual allowance for individuals with income (including the value of any pension contributions) of over £260,000 a year, where their income (excluding pension contributions) is in excess of £200,000.

2. The Money Purchase Annual Allowance (MPAA)

The MPAA is the maximum amount you can pay into your money purchase (also known as defined contribution) pension in a tax year after you have started to take money from your pension pot in certain ways. Your pension scheme or provider will tell you if the MPAA applies to you when a payment is made.

3. Annual Allowance charge

This is the rate of tax you pay for any contributions over your Annual Allowance or MPAA in a tax year.

4. The Lump Sum Allowance (LSA)

When you access your pension, you can usually take up to 25% of it as a tax-free lump sum. Your ‘Lump Sum Allowance’ is the maximum amount of money you can take as tax-free lump sums from all the pensions you have. While you can still take out money over this allowance, you will need to pay income tax on it. The Lump Sum Allowance is £268,275. It will be higher if you have any protected tax-free lump sums, or a protected lifetime allowance.

5. The Lump Sum Death Benefit Allowance (LSDBA)

Your ‘Lump Sum Death Benefit Allowance’ (LSDBA) is the total amount of tax-free money you can take across all the pensions you have as a:

• tax-free lump sum
• tax-free serious ill-health lump sum, paid out before you turn 75, or
• tax-free lump sum death benefit, paid out if you pass away before you turn 75.

The LSDBA is £1,073,100. It will be higher if you have any protected tax-free lump sums, or a protected lifetime allowance. Income tax will need to be paid on any funds paid above the LSDBA, by whoever receives the payment.

6. The Overseas Transfer Allowance (OTA)

The ‘Overseas Transfer Allowance’ is the maximum amount you can transfer from any registered UK pension schemes you have, to any Qualifying Recognised Overseas Pensions Schemes (QROPS). The Overseas Transfer Allowance is £1,073,100. A 25% overseas transfers charge will be taken from any transfers over this.

Important Income Tax Footnotes

*

Assumes you are in receipt of the Standard UK Personal Allowance.

**

Personal Allowance reduced by £1 for every £2 earned over £100,000.

Important Notes on Pension Death Benefits

Important:

Please note that the government has announced its intention to include the value of deaths benefit paid from most unused pension funds within the value of your estate for inheritance tax purposes if you were to die on or after 6 April 2027. The exact rules are currently under consultation by the government.

* Lump sum (If you die before age 75)

A lump sum is subject to the Lump Sum and Death Benefit Allowance (LSDBA). It will also only be free of income tax if it’s within this allowance and is paid within two years from when the scheme is first notified of your death. Any lump sum older than two years will be taxed in the same way as payments made if you die aged 75 or older.

** Income (If you die after age 75)

Income is taxed at the beneficiary’s/beneficiaries’ marginal rate of income tax.