New LTA regime - pre-2006 DB with no relevant BCEs
Wildparaplanner
Member
Hi (Les),
We have a client who commenced a DB in 2001 (armed forces pension) and never took any benefits from a DC pot post 2006 and has only been accumulating.
DB at the time of commencement was around £7,700pa but is now currently paying around £18,000pa.
Client has accumulated a DC pot in that time worth around £850,000 and is now retiring. Has no protections.
I could do with knowing the implications of the client doing either a relevant BCE now (which I believe will then recalculate the pre-2006 pension for LTA purposes) or waiting until post April 2024 under the new regime. What will this mean as far as LSA and LSDBA is concerned?
Many thanks
Wild
Comments
Hi (Wildparaplanner)
If they have their first benefits post April their LSA and LSDBA will be reduced by 25 x 18000 x 25% = £112,500. They will not be eligible to get a TTFAC if the actual tax free cash they got was less than the default transitional deduction. You can only get a TTFAC if you have used LTA.
So pre April if they have a BCE they would use 450k of LTA that would give the exact same deduction - but allow a TTFAC application to be made.
They will need a TTFAC or they will only have LSA of £268,275 - £112,500 - £155,775.
I'm willing to wager their TFC from the armed forces scheme was in the region of £21,000. They will need to be able to prove the tax free cash they got.
They need a pre April BCE done if they want to maximise their tax free allowances beyond April.
https://www.professionaladviser.com/opinion/4167344/lta-abolition-brings-advisers-tax-end-twist Covered here (since this was written HMRC have said you need to be able to prove your pre a day TFC have gone based on what they have said as opposed to what the law says.
Thanks Les.
Assuming the TFC was £21,000, they can prove it, do a BCE and then get a TTFAC, I take it there is no kind of revaluation calculation and this amount is what would come off their LSA post April 2024?
LSA = £268,275 - £21,000 = £247,275 (if BCE now and can prove TFC).
or
LSA = £268,275 - £112,500 = £155,775 (if no BCE pre April and thus no TTFAC possible)
With a difference of £91,500, this would look like it would be worth doing? Am i missing anything else or anything relating specifically to the LSDBA?
No revaluation there it's straightforward add up all the tax free amounts.
I would imagine more PCLS is worth it...
Not that I can think of. They'll also get a better LSDBA (if required)
Thanks Les, have been watching some techy thursday stuff on the matter this morning (01/02/24 around 30-35 min mark)
As it's a pre-commencement pension and there was no such thing as PCLS/UFPLS at that time in 2001, is the tax-free cash (£21,000) even relevant as far as "evidence" for the TTAFC is concerned? Or does pre-commencement tax-free amounts fall into scope now?
Would they not just require evidence of the tested pension amount (i.e. £18,000 x 25 = £450,000 = 41.93% of the LTA) and assume that no "tax-free cash" was paid even though there was but it's not called a PCLS?
In practice, I've never had to get a pre-commencement pension tested in the current regime, but who actually does the test and provide the certificate? Is it the scheme where you take the BCE? What evidence do they require to do the LTA test now?
I feel like we might have run out of time to get this done before April 5th, but I guess it's worth trying as won't be any worse off if we do or don't get a TTFAC.
Things have moved on since 1/2
HMRC are saying you need the pre 06 TFC amounts - that's nto what the law says now but that's what they say it's going to say.
The scheme that does the first BCE should give them the LTA used by the pre 06 pension. Evidence will just be evidence of current income level - schemes may just accept what they are told some might want evidence.
Anyone with a pre 06 should have been tested as early as possible after 2006 to stop any increasing pension form increasingly using allowances.
Thanks Les, that clears that up.
In this case, we have an ex-military pilot who went on to be a commercial pilot and accumulated a big DC pot in that time but is looking to retire later this year.