Lifetime Allowance Removal 2. Death Before 75
Published / Last Updated on 28/04/2023
Following discussions with a number of clients on the impact of the removal of the lifetime allowance (LTA) and freezing of the maximum tax-free cash lump sum at £268,275, we have decided to make a series of videos covering some of the more technical points.
If you already exceed the Lifetime Allowance (LTA) of £1,073,100 in the current tax year 2023/24 the LTA remains but there is now a tax charge rate of 0% for exceeding the LTA. That said, there is still the question of taxes on death before age 75.
Uncrystallised v Crystallised
- Uncrystallised funds are pension funds that you have not accessed with lump sum or regular/irregular tax income benefits.
- Crystallised funds are pension funds that you have accessed the lump sum and/or regular/irregular tax income benefits.
Death Before Age 75
- Uncrystallised funds below the LTA will be paid to beneficiaries’ tax free.
- **Uncrystallised funds exceeding the LTA will be taxed based upon the beneficiaries’ normal rates of income tax.**
- Crystallised funds exceeding the LTA will be paid to beneficiaries’ tax free.
**Update 29/04/23** HMRC U-Turn on Excess Tax Charges. See: U-Turn Death Payments
Conclusion
It is therefore worthwhile considering crystallising all these funds in tax year 2023/24 even if you are over the LTA while there is no LTA tax charge (0%) so that pre-75 death benefits can be paid to beneficiaries’ tax free or asking you pension provider to structure you pension fund in drawdown, even if you are yet to drawdown any income or lump sums.
