Order of BCEs when buying an annuity, net of PCLS

Gustavo_Fring

Hi, I think I’m unnecessarily getting a headache over a LTA calculation so I just need to confirm something in my head with the experts on here!

• An imaginary client has used 80% of their LTA of £1.25M, so £250K remaining
• They are about to use the value of their personal pension (£400K) to buy an annuity, taking 25% tax free cash (£100K).
• There are two BCEs which occur here….BCE4 – buying an annuity and BCE6 – payment of PCLS.

When purchasing an annuity, which BCE is tested first? I think it is the payment of £100K PCLS?
What about the fact that there is only £62,500 of the PCLS entitlement left? Does this mean £37,500 excess charged at 55%, with the £300K used to purchase an annuity taxed at 25%?

Thanks

Jona

BCE 6 happens first.

arongunningham

Those imaginary clients always find themselves in complicated situations

benjaminfabi

You can't take more than 25% of the available LTA as a pcls. The provider should have a process that flags this before it happens.

Anything over the LTA is an excess lump sum and paid net of the 55%/25% charge.

For the £150k excess, this can be a mixture of lump sum, annuity or FAD, but it's all subject to the relevant tax charge before payment

Gustavo_Fring

@arongunningham said:
Those imaginary clients always find themselves in complicated situations

Thanks for the replies everyone.