Protected Tax-Free Cash & No LSA Remaining
Paraplanning831
Member
Hi all,
Just a query for when an individual has utilised all of their Lump Sum Allowance (still has remaining LSDBA though), and they still have a separate uncrystallised pension that has protected Tax-Free cash. They utilised some of their LTA prior to 2024, and then have crystallised benefits in 2025 (and so no TTFAC would be available if this impacts).
What are the rules around the individual still being able to access this protected tax-free cash? Is this not possible as there is £0 of LSA remaining? Or does the protected tax-free cash not come under these rules and so as long as there is remaining LSDBA, the client can further crystallise up to that amount and receive the respective tax-free cash?
Further to this, if the provider states that the protected tax-free cash for the policy was 100% at A-Day, does this impact the rules surrounding this specific protected tax-free cash?
Any information or pointers would be appreciated.
Thank you
Comments
Here's what I think...
If the scheme specific protected tax free cash in an uncrystallised scheme, then it's available even with no LSA, but would use up LSDBA.
If it was 100% of the fund at A-Day, then it isn't a SSPTFC sum, but it's a Stand Alone Lump Sum (SALS). SALS used to be available fully tax-free, but now what you can have tax-free is the lower of: the fund value, the available LSDBA, the amount of the fund on 5 April 2023. Any balance above that is taxed at marginal rate
https://www.mandg.com/wealth/adviser-services/tech-matters/pensions/lump-sum-options/standalone-lump-sums#tax-free-limit
Thank you both, that is very helpful.
In this instance, then, it will be a stand alone lump sum (SALS). I have looked into this but cannot seem to find a concrete answer on whether or not the client would be able to withdraw this stand-alone lump sum now that their remaining LSA is £0 (remaining LSDBA is still much higher than the lump sum would be).
I can see that for a SALS - the value at 5th April 2023 would be paid tax-free, and the excess amount of the pension value will be taxed as pension income essentially. In this instance, there is no primary/enhanced protection applicable.
However, the information I read says that the SALS will reduce the LSA by 25% of the value of the BCE and reduce the LSDBA by 100% of the value of the lump sum. As such, is the SALS therefore tested against both the LSA and the LSDBA, or just the LSDBA?
If it is the former, then for a client with no remaining LSA, are they unable to now take this SALS?
My understanding is that:
What would happen is if you had, say a £250,000 SALS and a £1m SIPP, and you took the SALS first, it would use £62,500 of the LSA, and then your tax-free cash from the SIPP would be limited to
£268,275 - £62,500 = £205,775.
Your total tax free cash would be:
£205,775 + £250,000 = £455,775
But if you did it the other way round, you could take £250k tax free from the SIPP and all the SALS. Total tax-free cash would then be:
£250,000 + £250,000 = £500,000
The order is important.
Yes!