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The Lifetime Allowance was introduced in April 2006 as the maximum fund an individual could build up without further tax charges. It was first introduced at £1.5 million increasing to £1.8 million in 2011/12. However since then it has been steadily declining with various budget announcements to its current level of £1 million. It was possible in 2006 to apply for enhanced and or primary protection.
It has been possible throughout this period to apply for various levels of lifetime protection which set the lifetime allowance at the previous higher level.
If you have applied for fixed protection it has meant no further contributions can be made. However, if you feel that having seen say a fall in fund value would impact on your overall retirement fund, you could make a subsequent pension contribution and effectively ‘bust’ your protection. This would then remove the protection previously held and you would then be subject to the current lifetime allowance available at that point.
If you had applied for individual protection it was necessary to have fixed levels of funds between set parameters, this would then allow you to still contribute, as it protects against falling fund values and allows you to top up back to your individual allowance without affecting the protection. It allows you to protect what you have gained in value then to that date whilst still accruing.
As the reduction to £1 million was announced it was also announced that the level would increase with effect from 2018/19 tax year, in line with Consumer Price Index (CPI). The details was that this figure would be set at the previous September’s Consumer Price Index (CPI), and where this is not a multiple of £100 it will be rounded up to the next £100.
On the 17th October 2017 The Office of National Statistics announced that the CPI for the September 2017 is at a 5 year high of 3%.
It has been confirmed that the lifetime allowance for 2018/19 will be £1,030,000. It should be noted that if no contributions have been made since the 2015/16 tax year it is still possible to fix the lifetime allowance at £1.25 million.
If you feel that you may be affected by the lifetime allowance, we would suggest that you speak with your usual financial adviser or alternatively, speak to Kerry Houghton for more information on 01772 550614 or via email Kerry.firstname.lastname@example.org