Pensions Time Bomb

Partners at risk of exceeding the lifetime allowance should act now, warns Mike Fosberry.

The reduction in the lifetime allowance from £1.8m to £1.5m from 6 April 2012 means some partners could end up with a 55% tax charge on benefits over this amount unless they take urgent steps to register for 'fixed protection'.

Who will be affected?

Under current pension rules, the value of an individual's pension arrangements must be measured against a lifetime allowance. If the value exceeds the lifetime allowance, a 55% tax charge is levied on the excess.

The lifetime allowance for the current tax year to 5 April 2012 is £1.8m, but it will reduce to £1.5m from 6 April 2012. It is quite possible that the new £1.5m threshold will be in place for a while, drawing more and more people into the 55% tax net.