TTFAC and pre-commencement pensions
benjaminfabi
Moderator
Hi all,
The new PTM has gone live and there is an interesting paragraph in this section https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm174100#LSAandcerts
The lump sum transitional tax-free amount is the total of the following amounts (if any) that the individual was entitled to prior to 6 April 2024:
Pension commencement lump sums
Uncrystallised funds pension lump sums
Stand- alone lump sums
Any tax-free lump sums taken before 6 April 2006
so far as no income tax charge has arisen in respect of these lump sums.
In addition, if the member had a pension in payment before 6 April 2006, 25% of the amount of the deemed BCE under paragraph 20 Schedule 36 FA 2004 that occurred immediately before the first BCE is included in the lump sum transitional tax-free amount.
The lump sum transitional tax-free amount is deducted from the lump sum allowance to calculate the individual’s available lump sum allowance.
I was thinking that a TTFAC would have a deduction in respect of an ACTUAL tax-free amount taken from a pre-commencement pension.
Does this paragraph in the guidance change my thinking? Or was it always like that? I'm suddenly doubting everything I've been doing!!! I don't recall a mention to this bold paragraph anywhere until now.
Comments
Hi
HMRC in a muddle.
They have stated in meetings and in pervious newsletters that it will be the actual amount of TFC paid.
This bit on pre 06 pensions was in the new regs they published and was a bolt from the blue.
I'm waiting on an answer from them.
Thanks Les. I'm glad I'm not going mad. I hadn't seen this in anything I had read from HMRC to this point.
They even say in this section that it will be the actual amount paid. The way it reads is that it will also include a further 25% deduction based on 2006-2024! In essence double counting when a member received some tax-free cash and was then deemed to have received PCLS.
I asked Transact about this (as they are the platform for the first case I am dealing with). Here is the response:
Previously HMRC confirmed that the TTAFC position for pre-commencement pensions would simply look at the TFC physically paid. As you’ve pointed out they have since updated their guidance on this to confirm the “25% of deemed BCE position” as well.
We reached out to HMRC to confirm the correct position and they have stated the 25% BCE is correct and they will remove the lump sum physically paid bullet point (to stop this from being double counted for the purposes of the certificate) . It may be prudent to await further updates to the manual/communication on this from them.
Shambles.
@benjaminfabi
Just had confirmation from HMRC that there's no TTFA benefit for pre 2006 pensions they will use 25% of the deemed BCE as the transitional tax free amount on a certificate (which is what is in the amending regulations).
Which will be blow t the person I had whose pre 2006 pension was using up 1.7m of his FP12 LTA and has £800k of unvested money left!
That was £1.7m with no tax free amounts at outset to be clear!
What a ridiculous state of affairs @les_cameron have you ever known anything like it?
Presumably next week's instalment will be a clarification that SSPTFC will count towards the LSA and therefore can't be taken at the end as a freebie.
I recall in a thread on here you'd said there were quite a few 'too good to be trues' in the legislation. Well reality is kicking in now, and it's really just 'mistakes in haste that we'll sort out later'.
And the backdoor to make these changes crosses beyond the general election. So in theory a new government with a large majority can change whatever they want no bother.
Was a bit messy in 2006 and 2014 too. We were still getting rules in 2009/2010 to fix stuff that was wrong from 2004.
The SSPTFC you will just need to have a £1 of LSA, fairly sure of that, the only bit of ambiguity at present is whether you need to have LSDBA to cover the tax free amount paid - guidance has this in it but the law doesn't.
The pre commencement regulations are there already so that's the law. The ambiguity was the regs contradicted what they told us they were doing.
The news that over 75s who haven't taken their tax-free cash are going to be worse off does not make sense to me. Why is the age 75 test suddenly a factor in determining a client's Lump Sum Allowance (LSA)?
HMRC have really messed up here. If a client has a regular UFPLS payment set-up, they could inadvertently lose out on thousands.
The number of people applying for a certificate is going to be higher than most providers think.
Does this mean that anyone with a pre-2006 pension in payment who didn't do a BCE between 2006-2024 will now have a new deemed BCE within the TTFAC or only those that did a BCE in that time period?
@Wildparaplanner anyone who had a pre-commencement pension and no BCE between 04/2006 and 04/2024 won't have a TTFA, as there were no transitional events that would need to be included.
When they have an RBCE now, the pre-commencement pension will be tested exactly as it would have been before, and 25% of the RBCE that relates to the pre-commencement pension will reduce the LSA.
@SA96 where is that reference? I haven't seen that age 75 affects LSA availability.
https://www.quilter.com/help-and-support/technical-insights/technical-insights-articles/transitional-tax-free-amount-certificate-ttfac/
"If your client is over age 75, they will have had a lifetime allowance test at age 75. Unlike the pre 6 April 2024 rules, the age 75 test on uncrystallised funds is not disregarded under the transitional standard calculation. Therefore this client could benefit from a TTFAC"
Quilter also include an example of how a client is penalised by the new rules.
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Does this mean that there is, in effect, no detriment if a client did a BCE (say last week) to gain a deemed BCE than if they waited post 6th April 2024? We made a client do a BCE last month who had a pre commencement pension because of the previous rule where we could use the actual TFC amount assuming we had a BCE in place to get a higher TTFAC and not the 25% BCE amount which is now being implemented.
@Wildparaplanner as I understand it there is no benefit to having taken that action last month. Although there isn't any detriment either - other than the work you've put int getting it done.
@SA96 I think they are going to change that in a future amendment and, in the meantime, as long as the client doesn't take a BCE before they apply for TTFAC they won't be worse off. It does mean you need to be on your toes with any regular UFPLS ie stop them now.
Based on HMRC's newsletters, if your client has enhanced protection and you transfer a pension to another scheme, your client's lump sum goes to nil.
In the newsletter, they are talking about resolving this. But what a complete and utter shambles.