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I have a SIPP, which is about to exceed my LTA, £1.25m I am

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I have a SIPP, which is about to exceed my LTA, £1.25m
I am 67, with two kids of 15. I pay top rate tax.
I intend to live beyond 75 years old!!!
To date I have not taken anything from this SIPP. I have no need of income from this SIPP.
Please comment on following....
If I leave it, I will pay 55% on any excess if I take a lump sum.
If I do take a lump sum, up to 25% before age 75, the remainder can continue to grow...we hope!...but my kids will still inherit what is left free of IHT.
If I die at 75+ my kids will pay 45% income tax, on any lump sum or income
Complicated matter...Hope the above is clear!! Nick.
Submitted: 7 months ago.
Category: Tax
Expert:  bigduckontax replied 7 months ago.

Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question.

You are over 55 so you can liberate your pension. 25% of the sum liberated will be tax free and the balance at your marginal rate of tax, presumably, from the tenor of your question, is 45%. If you die and your children inherit your pension pot then post 6 April 2016 the following rules apply [Source: The Telegraph]:

'In very broad terms, when someone dies under age 75, under the new regime the recipients of their unspent pension cash won't be taxed at all.

Where someone dies over 75 – and that is likely to be most cases, based on our longevity – the recipients of the cash won't pay a 55pc pensions death tax. Instead they'll pay their own "marginal" (highest) rate of income tax on the pension cash they take as their inheritance.

This would put the people inheriting the pension cash in the same position as the owner of the pension pot: you can take all the money, in the form of regular sums or chunky, one-off withdrawals, but you do have to pay income tax on the money at your highest marginal rate.'

I think the reality is rather better than you thought!

You may need to protect your pension pot if you are in danger of exceeding the new limits. Here is the advice from the Money Advice Service:

'Protecting your lifetime allowance

If your total pension savings exceeds £1 million on 5 April 2016, you may be able to apply for protection under the Individual Protection 2016 and Fixed Protection 2016 schemes.

For those who had a total pension savings that exceeded £1.25 million pounds on 5 April 2014 (before the threshold reduced), you may be able to apply for protection under the Individual Protection 2014 and Fixed Protection 2014 schemes. You have until 5 April 2017 to submit your application to Her Majesty’s Revenue & Customs (HMRC) for these schemes.'

I do hope that you have found my reply of assistance.

Customer: replied 7 months ago.
Hi Keith, thanks for that reply.
Just to clarify.....
If I take out a lump sum,,,,say £300k, 25%'ish of £1.25m....the remaining £950k, can continue to be invested and grow within the SIPP tax free? But any further withdrawals will be taxed at my marginal rate?
By taking a lump sum....crystalising part of the SIPP....I don't affect the 'no IHT' position of my kids, if I should kick the bucket pre 75?
Thanks for your re-assurance! Nick.
Expert:  bigduckontax replied 7 months ago.

Yes, you can do it this way, it seems a common enough approach these days. Beware though, pension providers charge pretty hefty fees for these sort of liberation activities, up to 30% of your pot.

No, the pot will just be a bit lower, maybe considerably so, see the previous paragraph.

Please be so kind as to rate me before you leave the Just Answer site, Nick.

bigduckontax, Accountant
Category: Tax
Satisfied Customers: 3369
Experience: FCCA FCMA CGMA ACIS
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Customer: replied 7 months ago.
Many thanks for your help! Nick.
Expert:  bigduckontax replied 7 months ago.

Thank you for your excellent support.

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