LTA / Small Pots & max PCLS

Sam_T

Hi

Probably getting myself in a right tangle....client has maxed their LTA and PCLS cap using a DB scheme and now wants to use Small Pots to take a tiny DC plan.

I know that this isn't a BCE for LTA, but do I need to worry about taking PCLS over and above the PCLS cap?

I think I know the answer, but doubting myself now!

Thanks

Wildparaplanner

Both PCLS and LTA events fall under the BCE legislation. I don't think the tax-free element of a small pots payment is technically classified as being "PCLS" given the fact it doesn't classify as a BCE.

In other words, it's an isolated event which holds separate tax treatment which closely mirrors that of normal pension withdrawals.

les_cameron

What @Wildparaplanner said.

Small pots don't give PCLS - if they did it would be a BCE6. Small pots from uncrystallised pots have 25% taxed at 0%

les_cameron

@les_cameron said:
What @Wildparaplanner said.

Small pots don't give PCLS - if they did it would be a BCE6. Small pots from uncrystallised pots have 25% taxed at 0%

So no need to worry.

Sam_T

Cheers Les - I thought as much but started to get my knickers in a twist!

les_cameron

Note there is ambiguity at present whether small pots tax free amounts use up your post April 24 allowances. I think as drafted the legislation says yes but think the intent is no. Time will tell.

benjaminfabi

I read the legislation draft and recently said this to another person...

In 637U of the draft, paragraph 3 states that:

If no relevant benefit crystallisation event has occurred in relation to the individual before the current event, the whole of the individual’s lump sum allowance is available.

The payment of a ‘small lump sum’ is not a BCE (PTM063700).

Therefore, my reading is that any small lump sums taken won’t reduce either the lump sum allowance (PCLS as was) or (through 637W paragraph (3)) the lump sum and death benefit allowance (set at what is the current LTA).

les_cameron

@benjaminfabi said:
I read the legislation draft and recently said this to another person...

In 637U of the draft, paragraph 3 states that:

If no relevant benefit crystallisation event has occurred in relation to the individual before the current event, the whole of the individual’s lump sum allowance is available.

The payment of a ‘small lump sum’ is not a BCE (PTM063700).

Therefore, my reading is that any small lump sums taken won’t reduce either the lump sum allowance (PCLS as was) or (through 637W paragraph (3)) the lump sum and death benefit allowance (set at what is the current LTA).

A relevant benefit crystallisation event in the new world is an authorised lump sum payment. The small pots regulations dictate that small pots are to be treated as trivial commutation lump sums for tax purposes.

TCLS are authorised lump sums. Ergo it looks like the law actually takes them into account in the new world. I don't believe that is the intent though so we will need to await HMRC guidance / the actual first draft of the bill.