Paying the LTA excess charge

arongunningham

If a client has used 100% of their LTA and subsequently draws an annuity from another one (so it's all over the LTA), have you ever heard of an insurance company deducting the 25% charge from the income?

I thought you could only pay the charge as a lump sum at the BCE?

benjaminfabi

The test is BCE4 and is based on the value of the assets used to purchase the annuity. The test will be done prior to the annuity purchase and the scheme administrator and member are jointly liable. In reality, the scheme pays the charge before the annuity is purchased.

It's entirely possible that the member misinformed the scheme and gave the impression of more LTA remaining than was. In this situation I suppose it's possible that the member is given liability and has no other option to pay the charge other than through the income. This seems unlikely for someone who has no LTA remaining though: where is all their money?

arongunningham

Thanks - this is what we suspect has happened too (the LTA position wasn't correctly disclosed).

I've seen online that it's possible with DB schemes - but this wasn't one.

I can't imagine HMRC like this method because if the client died before the 25%'s added up to the overall charge , they wouldn't have received the full bill (unless, as you say, the insurance company actually foot the whole bill on day 1).

I don't understand what you mean by 'where is all their money'?

benjaminfabi

If they've used up all the annual allowance and then saved enough on top to still have a tax charge so large that they can't settle outright, then what are they spending it all on!

arongunningham

Oh I see. I think it was more settled on the thought that 'this is a charge against my pension, so I should pay it from my pension' rather than considering they could have paid it personally.

But you're right, the annuity figure was pretty high so he'd be better off paying it himself rather than reduce his pension.