Tax  

Tax take from lifetime allowance breaches jumps 62%

Tax take from lifetime allowance breaches jumps 62%

The number of people exceeding the lifetime pension allowance limit has surged dramatically in the space of a year, costing savers £126m in additional tax.

HM Revenue & Customs has confirmed that tax collected from those pension holders who went over the £1.25m lifetime allowance reached £126m in the 2015-16 financial year.

This is up 62 per cent from the £78m reported the year before.

Article continues after advert

The tax office also confirmed that the number of savers whose pension pots breached the cap jumped to 1,539 in the 2015-16 tax year, from the 1,482 figure reported during the previous 12 months.

On 6 April, the lifetime allowance was cut to £1m, meaning more savers are in danger of being caught out by the lower limit.

Figures covering the 2015 to 2016 financial year found that 449 individuals were taxed 55 per cent on the amount exceeding the £1.25m limit, while 1,009 were charged 25 per cent.

Since 2011, figures show a fluctuations in the number of savers being hit with heft tax charges, with £47m taken in the 2011-12 tax year, £44m in the year after, and £83m in 2013-14.

Les Cameron, a tax expert at Prudential, said: “While it may appear worrying that people are paying out more in tax, it is actually a more complicated issue.

“It can be counter intuitive for people to exceed an allowance, and pay a penalty to do so, but if when taking all the factors of long-term financial planning into account the overall net benefit of doing so is greater, it can make a lot of sense.”

He said financial planning around the lifetime allowance is a highly complex area, adding it is important to seek “appropriate” professional advice.