Timeline has added the facility to keep track of a client’s Lifetime Allowances (LTA) so you can give them an accurate representation of their used allowance and the tax implications of any further withdrawals from their pension pots.
You can find the new LTA facility in the Income Tax section of Timeline.
The current Lifetime Allowance is £1,073,000 and this amount is the threshold, up to which, all the income withdrawn from pension accounts are taxed as usual and no extra charge is triggered.
What does that look like?
Example A - Under the LTA threshold
Assume you are withdrawing a total of £300,000 from your pension pots for this year. Until now, throughout your retirement journey you have not withdrawn more that £1,073,000.
Example B – Over the LTA threshold
Now assume, your pension pot is worth a total of £3,000,000 and you have already withdrawn £1,073,000. The rest (£3,000,000 - £1,073,000) £1,927,000 will be taxed at 25%.
This will leave you with [ (1-25%) * £1,927,000] = £1,445,250
After this extra tax charge, you still have to pay income tax as usual on the £1,445,250.