LSA / LSDBA transitional rules calculation
PippaO
Member
H there,
I'm wanting a sense check on transitional rules for a client's LSA/LSDBA remaining please.
Our client has fully crystallised funds worth £775,208 (all in FAD)
Date crystallised amount PCLS taken LTA LTA used
23/02/2016 £366,076.61 £91,519.15 £1.25m 29.29%
23/02/2016 £26,706.07 £6,676.52 £1.25m 2.14%
28/08/2018 £442,641.82 £110,660.46 £1.03m 42.97%
total LTA used = 74.40%
Total PCLS taken = £208,856.13
His LSA is not £268,275 less total PCLS taken £208,856.13 = £59,418.87, as transitional rule for LSA is £268,275 less 25% of previous LTA used:
So £268,275 - (£1,073,100 x 74.4% x 25%) = £68,678.40 LSA remaining?
LSDBA remaining = £1,073,100 - £798,386 = £274,713?
Am I approaching this right?
Maybe @les_cameron is in here today and can help confirm?
Many thanks.
Comments
Formatting's gone out of whack above and confused the hell out of the numbers. Here we go
23/02/2016
Amount crystallised £366,076.61
PCLS taken £91,519.15
LTA £1.25m, LTA used 29.29%
23/02/2016
Amount crystallised £26,706.07
PCLS taken £6,676.52
LTA £1.25m, LTA used 2.14%
28.08.2018
Amount crystallised £442,642.82
PCLS taken £110,660.46
LTA £1.03m, LTA used 42.97%
I'm on just about every day!
LSA spot on. LSDBA not quite right (you take off a 1/4 of amount of LTA used, or 100% for that part that relates to a serious ill health lump sum)
See below
LTA £1,073,100.00 LTA remaining £274,713.60
LSA £268,275.00 Pre April 24 Applicable Amount £68,678.40
LTA LTA previously Transitional Default Actual
used used amount Tax free amount used Tax Free paid
29.29% £314,310.99 £78,577.75 £91,519.15
2.14% £22,964.34 £5,741.09 £6,676.52
42.97% £461,111.07 £115,277.77 £110,660.46
74.40% £798,386.40 £199,596.60 £208,856.13
PCLS Permitted Maximum Position Post April 2024
Standard Default £68,678.40
With Transitional Tax Free Certificate £59,418.8
LSDBA remaining
Standard Default £873,503.40
With Transitional Tax Free Certificate £864,243.87
Note your 2018 event has a transitional default tax free amount higher than the actual tax free amount paid. But if you asked for a certificate you'd be worse off (as the actual lump sums paid is higher than the transitional default for the previous events.
See transitional allowance usage here https://www.mandg.com/pru/adviser/en-gb/insights-events/insights-library/lifetime-allowance-abolition-from-2024/the-new-allowances
LOL - bad formatting too!
Thanks for your response Les, as always much appreciated!
Les, does that mean if you get a transitional certificate it needs to be on all schemes that have paid PCLS?
Yes - you can;t cherry pick. You are just proving you have had less in total than the default calculation. Full disclosure will be required.
The rules say the transitional tax free amount is the sum of all PCLS and non taxable part of UFPLS.
Thanks, Les.
Hi There - I am sure to get all the terminology wrong, but hopefully you can follow.
Q - To work out his tax free cash now available (lets say this is taken before 6th April 2024), we thought this would simply be 25% x £450k i.e. £112,500. BUT, now we are confused ....
Should we be looking at 25% x £1.25 million i.e. £312,500? (assuming he did not receive any tax free lump sum from his DB benefits)
Friday afternoon fog!
Lower of applicable amount or 25% of available LTA.
PCP is valued at 25 x pension immediately prior to your BCE.
If that's £800k then they have 450k of LTA left.
So pre April TFC is the same.
Post April
That PCP is valued at 800k - 25% of that will come off your LSA - so your LSA will be £112,500.
BUT!
If they do have a BCE before April even a small one then that would trigger a deemed BCE. That 800k would have a transitional LTA usage of 800k/4. As it stands, we believe you could then get a transitional certificate showing £0 as these people never had PCLS or an UFPLS as they didn't exist. So you would have LSA of £312,500, less the deemed cash from your small BCE. (which if it was a £1 of drawdown with no cash you could also have as £0 transitionally). Leaving LSA of £312,500.
everyone is assumed to have had full tfc on pre commencement pensions - that's why you multiply by 25 and not 20.
Les - that is great thanks you as always
Does anyone know if these transitional rules benefit individuals who previously transferred benefits out of the UK via a QROPS transfer?
My client transferred a pension to Malta and then took a PCLS from his Malta scheme. As he used all of his LTA on BCE 8 and took no tax-free cash, am I right to assume his LSA is £268,275 (assuming he gets a certificate)? The PCLS from the Malta scheme is therefore ignored?
Thanks in advance!
This article came up recently. I wonder if this was an unintended consequence?
https://archive.ph/ps6zt
Simply, the criteria for getting a certificate is you have had a BCE and ask for it with evidence before your first RBCE.
If your tax free amounts of PCLS and UFPLS are less than 25% x LTA used x £1,073,100 you'll get more LSA and LSDBA.
In short - I agree with you.
Thank you for the quick response!
The Finance Act 2024 document is very difficult to understand especially regarding what PCLS may be available post 6 April 2024.
If someone has used all LTA before 6/4/2024 but when putting a DB pension into payment did not take any PCLS at the time, they theoretically have a lump sum allowance available. Is a transitional certificate of any use here or does the fact that no LTA remains mean that this option is unavailable.
If so, there is a potential cliff edge - person A has taken a DB pension with no PCLS and used 99.9% LTA and has £258k future PCLS available but person B took a slightly bigger DB pension at the same time with no PCLS at 100% LTA has no future PCLS available. This couldn’t be the intention surely?
Example..
DC pension £273,100 took 25% of this AS PCLS
DB pension £35,000 pa LTA value £700,000 no PCLS taken
Total benefits taken match LTA of £1,073,100
Now this person has further DC benefits.
Pre 6/4/23 LTA charge of 25% on any crystallisation
Pre 6/4/24 LTA charge of 0% on any crystallisation
Post 5/4/24 does he have a maximum PCLS available of 25% of £700,000 as he didnt take any from the DB assuming the uncrystallised remaining DC pension can support it? Does this pot need to be £700,000 or can it be the same size as 25% of £700,000 meaning it can be taken as 100% PCLS?
Don't read the regs - read Tech Matters instead! https://www.mandg.com/wealth/adviser-services/tech-matters/news-and-views/lifetime-allowance-abolition-from-2024/lsa-lsdba
You can get a TTFAC regardless of how much LTA you have used.
Use this tool - put in your numbers and it'll tell you what the yget with a standard calc and with a TTFAC https://www.mandg.com/wealth/adviser-services/tech-matters/tools-and-calculators/lta-transitional-tax-free-amount-tool
Tool print out