James’s situation will be as follows:
|Total DC savings at age 65||£1,400,000|
|Amount designated for drawdown at age 65||£1,050,000|
|% of lifetime allowance used at age 65 in 2010||77.78% (£1,400,000 / £1,800,000 x 100)|
|Lifetime allowance at age 75||£1,073,100|
|Value of drawdown funds at age 75||£1,710,339|
|Net growth in funds at age 75||£660,339|
|Lifetime allowance remaining at age 75||£238,443 (£1,073,100 x 22.22%)|
|Excess over lifetime allowance at age 75||£421,896 (£660,339 - £238,443)|
|Tax charge (£421,896 x 25%)||£105,474|
|Residual fund (£1,710,339 - £105,474)||£1,604,865|
The scheme therefore pays the lifetime allowance excess charge of £105,474 to HMRC and James’s fund is reduced to £1,604,865.
The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice. Also it may not reflect the options available under a specific product which may not be as wide as legislations and regulations allow. 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.