BCE5A at 75

Colinstewart76

Hi all. Looking for some guidance. A client crystallised all of the pension benefits to Flexi-Access Drawdown a couple of years ago. He used 103% of the LTA and the excess of £30k has been retained in the pension fund for future income (less the LTA charge he had to pay at the time).

Question is re the BCE5A test. I know that the fund now in drawdown in respect of 100% of the LTA used will be a subject to a BCE5A at 75, but what about the little bit that's also retained in the fund as the 'excess' from the original BCE. Is that excess part also subject to the BCE5A test or is it ignored?

I haven't read anything definitive to lead me in either direction....if anyone has any references that'd be really helpful.

benjaminfabi

Hi

As there is no LTA remaining, the charge at age 75 will only capture the growth. As none of the growth has previously been taxed, because it didn't exist at the first bce, it is all fair game.

Colinstewart76

Thanks Benjamin

benjaminfabi

No worries, Colin.

The more complete answer (it was late when I saw this first time) is that all funds designated into drawdown via BCE1 are tested again at age 75 through BCE5a.

The impact of having exhausted the LTA on the first event is that there is none left for the second. BCE5a. The chargeable amount is the value of the fund at age 75, less the amount designated through the BCE1. Although there was an excess the first time round the LTA tax is still due on the growth of that amount on the second test.

My reading of the following link is that the amount designated is net of the LTA charge taken at the BCE1. Adding assumed figures to your example, this is £1,030,000 less £7,500 (25% LTA charge on the £30k excess).

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm088610

The amount crystallising through BCE 1 will be the actual amount designated to provide a drawdown pension, net of any deduction made by the scheme administrator to cover any lifetime allowance charge due.