If James’s funds in drawdown enjoy net growth of 5% each year, the 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 LTA used at age 65 in 2010||77.78% (£1,400,000 / £1,800,000 x 100)|
|LTA at age 75||£1,073,100|
|Value of DD funds at age 75||£1,710,339|
|Net growth in funds at age 75||£660,339|
|LTA remaining at age 75||£238,443 (£1,073,100 x 22.22%)|
|Excess over LTA 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 LTA excess charge of £105,474 to HMRC and James’s fund is reduced to £1,604,865.
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