How we saved a client £62,375 in unexpected pension tax

As Independent Financial Advisers, we’re able to provide advice on a wide range of financial areas. We would like to share a case study with you in which we speak with Chris Parker, who is an Independent Financial Adviser based from Chase de Vere’s Chester office. He tells us how he helped clients who were facing a large and unexpected pension tax bill.

“My clients are a husband, aged 80, and his wife, who is aged 77. They have total investments of more than £1 million and I’ve been advising them on their investments and inheritance tax planning.

“The husband started to take benefits from his NHS Pension Scheme and another Defined Benefit (final salary) pension scheme quite a few years ago. These two schemes used up all of his Lifetime Allowance. The Lifetime Allowance was the total amount of pension benefits that somebody could accrue without incurring a tax charge. My client’s own Lifetime Allowance was £1 million, this amount is based on when he started to take pension benefits.

“While the pensions Lifetime Allowance charge has been abolished from 6 April 2023, there may be circumstances when people still have to pay a tax charge for any ‘benefit crystallisation events’ which happened prior to this date. One of these events occurred on someone’s 75th birthday. On this date, any pension arrangements valued at more than the Lifetime Allowance would be taxed.

“In addition to his NHS and other Defined Benefit Scheme, he had a personal pension valued at £280,000.

“Even though the client is now aged 80, he was recently contacted by his personal pension provider which said that they had failed to conduct his Benefit Crystallisation Event check at age 75 and so would have to do it now. Following this calculation, my client was told that he would have to pay a Lifetime Allowance tax bill of £70,718.

“My client was shocked to be facing a large and unexpected tax bill. His tax bill was so large because he had a Lifetime Allowance of only £1 million. Thankfully I was aware of Fixed Protection 2016 which meant that my client could increase his Lifetime Allowance to £1.25 million. I checked the details with Chris Howerd, from Chase de Vere’s Technical Advisory Support team, and he confirmed that my client would be eligible for the protection.

“As a result of applying for Fixed Protection 2016, my client’s Lifetime Allowance tax bill has been slashed from £70,718 to £8,343. This was a great result for my client, and he was really pleased.”

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