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[Case study] This international executive saved £161k in tax by doing ONE thing…

By David Norton - March 12, 2020

Back in 2020, a high-performance executive contacted us.

Being a passport holder of one country while living in another with numerous bank accounts, policies and pensions…

He needed help simplifying his complex financial situation.

“Am I properly set up for retirement?”, was his main concern.

His second being how he can structure his tax obligations back home in the UK.

Here’s how we helped.

Mark works for a global firm in Abu Dhabi and travels often for work.

He has a wife and two children.

Together, they have a portfolio consisting of:

  • 7 properties
  • 3 pensions
  • 5 investment policies
  • Cash

With multiple assets and investments, he wanted to ensure his finances were properly structured. And, being a non-resident UK citizen, wanted to ensure there’d be no nasty surprises once he retired.

After looking into his financial situation, we were able to address his two main concerns:

Both were achieved through one simple solution…

By combining Lifetime Allowance (LTA) Individual Protection with a Non-Residents Enhancement Factor.

This helped him increase his standard lifetime allowance by 33.65%.

And save 55% in taxes.

All of which amounted to £161,114…

Or an additional two years of retirement.

Meaning he and his wife could retire earlier than expected.

And spend more time together enjoying their hard-earned free time.

Without the stress, anxiety or uncertainty of whether or not they had 'enough'.

So how can you learn from their story?

Changes to the Lifetime Allowance from April 2023

This was the maximum amount you could hold in a pension without incurring excess charges.

Before April 2023, the LTA was £1,073,100.

Individuals whose combined pension benefits exceeded £1,073,100, were taxed at 55% (or 25% plus their marginal rate of income tax) on amounts above £1,073,100, when they came to draw down their pension.

For every £100,000 of pension benefits accrued above £1,073,100…

£55,000 was paid to HMRC in tax.

As of April 2023, this has been abolished.

Individuals may be able to receive to a tax-free lump sum when they become entitled to their pension benefits.

This is known as a pension commencement lump sum (PCLS).

The maximum amount that most individuals can claim as a PCLS is currently 25 per cent of their available LTA at the time this sum is taken. 

This measure sets a PCLS upper monetary cap of £268,275 (25 per cent of the current LTA). 

The Non-Residence Enhancement Factor

The non-residence enhancement factor (also known as the “non-resident factor”) was not well known by many financial advisers. 

It was available to individuals who worked as a ‘Relevant Overseas Individual’ at any time since 6th April 2006 and whose employers had been making contributions to a UK pension.

These individuals had not received income tax relief upon their pension contributions.

However, their pension would have been subject to the Lifetime Allowance in retirement and subsequently some heavy taxation.

The Non-Resident Enhancement Factor allowed such individuals to an increased personal lifetime allowance, based on time offshore.

The enhancement factor could be applied for while abroad…

Or up to five years after the end of the tax year in which they returned to the UK.

This enhancement was applicable to defined contribution, defined benefit and hybrid pensions.

It can also be combined with other lifetime allowance protections to create significant tax savings. 

So what now?

For those who've diligently saved throughout their working lives, the removal of the LTA is arguably a good thing.

It may also encourage more people to save for their future and provide greater flexibility in retirement planning.

While the above solution would no longer apply as of April 2023...

It demonstrates how sitting down with the right financial planner can have a huge impact on your path towards financial prosperity. 

And how quickly legislation can change and the opportunities it may present. 

But remember, the path doesn't start with numbers. It starts with your goals and purpose.

Talking to the right financial planner may even get you to your goals sooner...

And could relieve you of any anxiety and uncertainty.

And, like Mark, might even give you the gift of more time with your loved ones.

After all, that’s what it’s all about.

Living richly.

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