Tax collected by HM Revenue & Customs due to people putting more money into their pension than the government allows has almost tripled in three years, after a series of cuts to the allowance.
According to figures obtained by FTAdviser’s sister newspaper the Financial Times through a freedom of information request, the amount of tax jumped from £40m in 2014/15 to £110m in 2016/17.
The number of individuals caught by the lifetime allowance (LTA) tax rule more than doubled, from 1,020 to 2,410.
The LTA represents the maximum amount of money a saver can save in their pension pot with the benefit of tax relief at their marginal rate before incurring an additional tax charge of up to 55 per cent.
The additional tax charge will fall to 25 per cent if the pension is taken as income.
According to the freedom of information request, the number of individuals hit with this tax charge increased from 660 in 2014/15 to 1,830 in 2016/17.
Over the same period, the number of people facing LTA tax charges levied at 55 per cent for lump sum withdrawals nearly doubled from 360 to 580.
After rising steadily from £1.5m in 2006 to £1.8m in 2010, the LTA has been subsequently reduced in stages to £1m in 2017.
However, from 2018/19 onward, the LTA is increasing in line with inflation – standing now at £1.03m.
Financial advisers have struggled with understanding the lifetime allowance, with this subject being the most common reason for them to call the Prudential helpline last year.
maria.espadinha@ft.com
