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Protected tax-free cash query

WildparaplannerWildparaplanner Member
in Technical stuff

Hi,

I am looking at a case where a scheme has quoted protected tax free cash and have provided A day TFC figure and A day fund value figure.

However, looking at the contribution history for the plan, there are multiple transfers in (four in total dating back to January 2021), of which 3 are block transfers and one is not. There are also regular contributions that have happened since 2021 (which would appear to be when this plan was set up).

With regards to the enhanced PCLS calculation, is the whole current fund value applicable to the calculation, or would only a proportion of it count? When it comes to impact on the LSA, how is it treated if it's only a proportion of the fund in the enhanced calculation, given my understanding is you don't need to have the full LSA to be able to take the full enhanced amount?

The client also has a SIPP with no PCLS protection, and the combined fund values of both take them over the £1.073 LSA threshold, so my understanding is that you should take the SIPP first and then the other scheme 2nd to get the most PCLS possible and avoid any excess tax charge.

Thanks
Tom

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Comments

  • les_cameronles_cameron Member

    I presume only one block transfer had protected TFC?

    You use the usual SSPTFC calculation using the total value of benefits in the scheme from all sources. Remember you need to take all benefits in the scheme to get your SSPTFC. And you take 25% of the amount crystallising off your LSA and LSDBA.

    You are probably right about the order of benefits just do the sums. If £268,275 - 25% of the total value of the protected scheme is lower than 25% of your SIPP then taking SIPP first maximises PCLS.

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  • WildparaplannerWildparaplanner Member

    Thanks Les - given the whole scheme value is considered protected then, if the plan were to facilitate transfers in, is there a logic to try and transfer in to the scheme to benefit from higher PCLS?

    For example:

    Protected Scheme with SSPTFC = £500,000
    SIPP = £1,573,096
    LSA = £268,275

    Transfer £500,000 of the SIPP into the protected scheme ->

    Protected Scheme with SSPTFC = £1,000,000
    SIPP = £1,073,096

    Then fully crystallise the SIPP to take £268,274 PCLS leaving LSA remaining of £1
    Then fully crystallised the Protected Scheme to take the maximum PCLS without a tax charge as LSA = £1?

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  • les_cameronles_cameron Member

    Other than you no longer need to leave £1 (the rule changed) I think your principle is correct.

    If 25% of a non protected schemes is over the available LSA then you could boost overall TFC by transferring into the protected scheme the amount that you couldn't use for TFC in that scheme.

    SSPTFC - you just need adequate LSDBA and amount over the available LSDBA is taxable at marginal rate.

    You would take your non protected scheme last as taking the SSPTFC doesn't need LSA to be paid but it does use up LSA - 25% of the overall amount crystallised

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