Enhanced tax-free cash query

Wildparaplanner

Hi all,

I still can't get my head around how this will work as far as the current LTA regime and the new LSA regime.

This client is looking to fully crystallise an EPP for £520,000 with £196,000 PCLS (i.e. 37.69%).

Assuming this goes through this tax year, going forward from April 2024 onwards, what will be relevant as far as the calculation of their remaining LSA is concerned as the client has assets elsewhere where under the old regime, the LTA was an issue:

1. is it 48.45% of the LTA used x25%, which would equate to LSA used of £129,979?
2. or would the enhanced PCLS of £196,000 be what is taken off the LSA?

Thanks

les_cameron

The default deduction from LSA and LSDBA will be LTA% used x £1,073,100 x 25% - so basically they will use £130,00 of LSA.

Wildparaplanner

so in other words, as far as tax-free cash is concerned, to benefit from more PCLS in the future, they need to crystallise this plan before 5th April 2024?

les_cameron

No - both now and in the future it will use £130,000 of LSA. SSPTFC only uses LSA of 25% of the amount crystallised. The difference after April is it would use £196,000 of LSDBA but before April it would only use £130,000.

I'd recommend having a read at our LTA Q&A clinic on Prof Paraplanner - especially session 1 https://professionalparaplanner.co.uk/techzone/lta-clinic-with-the-mg-wealth-technical-team-session-1/

Wildparaplanner

Ah that clears that up, thanks Les. As per the other post, who really cares about the LSDBA when you just use beneficiary drawdown to bypass it anyways!!

les_cameron

@Wildparaplanner said:
Ah that clears that up, thanks Les. As per the other post, who really cares about the LSDBA when you just use beneficiary drawdown to bypass it anyways!!

Assuming the scheme allows it of course and the nominations are correct!

SA96

@les_cameron said:
No - both now and in the future it will use £130,000 of LSA. SSPTFC only uses LSA of 25% of the amount crystallised. The difference after April is it would use £196,000 of LSDBA but before April it would only use £130,000.

I'd recommend having a read at our LTA Q&A clinic on Prof Paraplanner - especially session 1 https://professionalparaplanner.co.uk/techzone/lta-clinic-with-the-mg-wealth-technical-team-session-1/

Hi Les,

The article states "It may be beneficial to take SSPTFC last as it does not get tested against allowances"

Quilter have taken a slightly different approach and they are stating you need at least £1 of each allowance remaining to take a SSPTFC last.

"Unlike a standard pension commencement lump sum (PCLS), a scheme specific protected lump sum is not limited by reference to the client’s remaining Individual’s Lump Sum Allowance (ILSA) or Individual’s Lump Sum and Death Benefit Allowance (ILSDBA). However because it is still a type of PCLS, the overarching rule that you must have all or part of your allowances available to be able to take a PCLS still apply. So there will need to be at least £1 of each allowance available to be able to take SSPTFC"

https://www.quilter.com/help-and-support/technical-insights/technical-insights-articles/new-rules-regarding-scheme-specific-tax-free-cash/?concertinaId=concertina__link--174105-2

Would be good to get some clarity?

les_cameron

Hi

Yes that wasn't clear enough in hindsight, the point being made was there is no permitted maximum.

There's two things at play here.

Yes you need a £1 to be able to pay it. But the lump sum does not have a limit - there's no permitted maximum you just get the calculated amount.

So say you had a pot of £1,073,100 and a SSPTFC pot of £400,000 with £200,000 cash.

Taking SSPTFC first reduces LSA for the other pot by £400,000 x 25%. So over all cash of £168,275 + £200,000

Take big pot first but leave £1 of LSA you can then get your £200,000 protected pot. So overall cash of £268,274 + £200,000

SA96

@les_cameron said:
Hi

Yes that wasn't clear enough in hindsight, the point being made was there is no permitted maximum.

There's two things at play here.

Yes you need a £1 to be able to pay it. But the lump sum does not have a limit - there's no permitted maximum you just get the calculated amount.

So say you had a pot of £1,073,100 and a SSPTFC pot of £400,000 with £200,000 cash.

Taking SSPTFC first reduces LSA for the other pot by £400,000 x 25%. So over all cash of £168,275 + £200,000

Take big pot first but leave £1 of LSA you can then get your £200,000 protected pot. So overall cash of £268,274 + £200,000

Perfect, thank you for clarifying.