LTA Test at age 75 - BCE5A and 5B

Sam_TSam_T Member
edited April 6 in Technical stuff

Afternoon

Not one I have had to deal with before, so I hope someone can help.

I have a client with £1.8 million protected LTA - he has used 63% to date. He has already passed his 75th birthday. He doesn't need any more income or PCLS and he has no spouse or beneficiaries (it all goes to charity on his death).

He has crystallised funds, which using BCE5A to test the growth, will use a further 8% of his LTA.

My problem is with his uncrystallised funds which exceed his remaining LTA on the BCE5B test, so there will be a 25% LTA tax charge.....the issue is these funds are split over 4 different plans.

Plan 1 is no issue as it is a SIPP and allows drawdown and can be held beyond 75.
Plans 2-4 are old school PPs and RACs (some With Profits with decent g'teed bonus rates) - these do not allow drawdown.
I am in contact with the providers of plans 2-4, but they are scratching their heads too (helpful) - my question to them is what happens to the funds net of the LTA tax charge? Can they be retained within the existing plans even though they do not allow drawdown, as the funds will be 'designated as drawdown' by HMRC post the LTA test (we don't really want to transfer out as the client will lose the g'teed bonus rates).

Has anyone any experience of this, or any ideas as to what happens next!

Thanks

Comments

  • benjaminfabibenjaminfabi Moderator

    Hi,

    My first query would be whether the RACs can continue beyond age 75 at all, even without the LTA issues. In my experience mostly they all have to be annuitised or transferred anyway. Keeping the guaranteed rates post 75 is impossible if the RAC forces action at that age..

    In this position, it doesn't matter whether there is an LTA charge or not.

    Is it the case that the post 75 funds automatically become designated as FAD? I thought it was reclassified as being crystallised (which I don't think is necessarily the same thing, because if there is LTA remaining, you can still draw a PCLS from some schemes). In any case, as he's already 75, you're into the situation where the scheme administrator has a liability to account for and pay any LTA charge along with the client.

    If I were looking at this, I'd be making sure that if a plan with a guarantee can continue, that was the last one that completed the BCE5b paperwork (and therefore had the least LTA tax deducted). Ultimately, the schemes are going to have to tell you what they intend to make the member do.

    Benjamin Fabi 
  • Sam_TSam_T Member

    Hi Ben

    The provider has confirmed that the plans can remain in force beyond 75 and the WP bonus rates will continue, so that's good news.

    Reading the HMRC manual is not much help, but it does seem that if scheme rules allow the net funds after LTA tax charge can be left as 'unused funds', but they would then be taxed as income (if no further PCLS available under LTA) if later withdrawn....it is the last bit I am worried about, as I am not sure the provider's ye olde back office system can cope with this.

    Lets hope the providers can confirm what they can do and then actually deliver.

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