Lifetime Allowance BCEs

Colinstewart76

Hi all

Looking for some help.

Say a client crystallises their whole fund into drawdown and, to keep the maths simple, the following applies:

• Fund value £1,400,000
• LTA at the time of crystallisation - £1,000,000

The client decides to take max PCLS of £250k and wants the rest of the pot to provide income. So the position is:

• Fund after PCLS £1,150,000
• LTA excess £400,000 @ 25% = -£100,000
• Leaves a fund designated into drawdown £1,050,000 of which £300,000 is in respect of the LTA excess.

Fast foward to 75 - the whole drawdown pot is now £1,350,000

Is the LTA test at 75 applied to the whole pot less the original total in drawdown (i.e. £1,350,000 less £1,050,000)? Or do you ignore the part that is in respect of the excess which has already been subject to an LTA charge?

arongunningham

My understanding is you're testing what's in the kitty compared the £1.15m you've used in the example.

benjaminfabi

Hi Colin

The original situation ends up with BCE1 funds designated into FAD of £1.05m, after the payment of the LTA charge.

At age 75, the relevant BCE is BCE5a:

Where a member reaches age 75 with a drawdown pension fund or flexi-access drawdown fund

This is a test of the current value of the funds previously designated into FAD via BCE1, with a credit given for the amount originally designated.

ie £1.35m less £1.05m = £300k being tested through BCE5a

The entire £1.05m was designated into FAD via a BCE1. The BCE5a doesn't distinguish between those amounts that were or weren't within the LTA when they went into FAD. So the growth of £300k is tested against the LTA again.

The answer to both of your questions is yes. Well, sort of. In your second question, we don't 'ignore' the part that has already been tested through BCE1, but we are taking it off of the amount being tested through BCE5a.