Qualifying Recognised Overseas Pension Scheme (QROPS) savers can lock their lifetime allowance at the current top level of £1.5 million before the terms are changed to less generous levels next year.
HM Revenue and Customs is allowing a transition period between the old and new lifetime allowance thresholds.
Although QROPS are not subject to UK lifetime allowance rules, investors will have had their retirement savings tested against them prior to any transfer offshore.
From April 6, 2014, the lifetime allowance drops to £1.25 million.
HMRC reckons around 30,000 retirement savers are affected by the allowance drop. These savers, plus any who consider their pension funds will swell above £1.25 million can apply for fixed protection to preserve their current lifetime allowance.
Fixed protection 2014
This is an important allowance for retirement savers, who could face tax charges on their funds if they breach the lifetime allowance thresholds.
HMRC has cleared the forms advisors and investors need to complete for applying for fixed protection.
Retirement savers must make the application before April 5, 2014, or lose the allowance. Retrospective applications are not considered.
Fixed protection does come with some conditions.
Retirement savers who have already reached the threshold or believe they will, must stop contributing into a UK registered pension scheme.
They cannot ask for fixed protection 2014 if they have already applied for fixed protection from HMRC in 2012 or for enhanced or primary protection that was available earlier.
Further individual protection will offer a lifetime allowance equal to the value of a saver’s pension rights on April 5, 2014 up to a £1.5 million.
Lifetime allowance tax charges
No applications on individual protection are open until after April 6, 2014.
“Most people won’t have pension funds valued at more than the current £1.5 million lifetime allowance or the £1.25 million threshold from April 6, 2014,” said an HMRC spokesman.
“Lifetime allowance protection is important because anyone who has a pension fund worth more than the lifetime allowance when they take their benefits will have to pay the lifetime allowance tax charge.”
This penalty can range from 25% of the fund value worth more than the lifetime allowance if the amount is not drawn as a lump sum, and up to 55% if it is taken as a lump sum.
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