High earners with big pension pots have until 5 April to register for protection against a punishing 55% tax. The lifetime allowance, introduced on 6 April 2006 (A-Day), capped the maximum value of a tax-advantaged pension at £1.5m. Any funds over and above this, taken as a lump sum on retirement, will be taxed at 55%, says Jennifer Hill in The Sunday Times. Sums used to generate an income will be taxed at 25%, with higher-rate income tax also liable on the income itself. A final-salary pension is converted to a fund value at the rate of £20 of fund per £1 of income, so someone entitled to a pension of £50,000 a year is deemed to have a fund worth £1m.
But you can ‘protect’ against the charge as long as you register before 5 April. You need to know how much your fund was worth three years ago (unless you stopped contributions prior to A-Day and are applying for ‘enhanced’ protection). If you can’t get a valuation on time, the tax office advises individuals make a provisional notification, which can be amended later. The relevant form, APSS200, can be downloaded at hmrc.gov.uk.