Douglas’s excess benefits value is £926,900 (£2,000,000 - £1,073,100). Douglas is taking the excess benefits value as income so the scheme administrator deducts a tax charge of 25% of the excess (£231,725). This leaves a net excess value of £695,175.
The benefits Douglas takes from his personal pension scheme are as follows:
|Tax-free cash (25% of standard lifetime allowance)||£268,275|
|Net of charge excess benefits value||£695,175|
|Residual benefits value (£1,073,100 - £268,275)||£804,825|
The scheme administrator pays HMRC the tax charge of £231,725 and pays tax-free cash to Douglas of £268,275. Douglas uses the remaining benefits value of £1,500,000 to purchase a lifetime annuity.
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All references to taxation are based on our understanding of current taxation law and practice and may be affected by future changes in legislation and the individual circumstances of the investor.