Transitional Tax Free Amount Certificates (TTFAC)

One of the key factors in the new allowances regime is how to account for previously used LTA against the new allowances.

This is done by a standard calculation based on the “lifetime allowance previously-used amount”. This is the amount that would have been the previously-used amount for the purposes of working out how much of someone’s lifetime allowance they had available under the old LTA rules assuming they had a BCE on 5 April 2024. 

The lump sum allowance is reduced by 25% of the previously used amount. Meaning if 100% of LTA was used the lump sum allowance is Nil. 

There is an equivalent deduction to the LSDBA however where some or all of the previously used amount is in respect of a Serious Ill Health Lump Sum, Defined Benefit Lump Sum or Uncrystallised Fund Lump Sum Death Benefit then the amount deducted is 100% of the previously used amount.

Fuller explanations and examples are in our Lump Sum Allowance and Lump Sum and Death Benefit Allowance articles.

However, an individual (or their personal representatives if they have died) can apply for a Transitional Tax Free Amount Certificate.

These certificates are provided by "certification administrators". They are either:

• the scheme administrator of a registered pension scheme of which the individual is a member (or if deceased, was a member immediately before death), or
• an insurance company to which a registered pension scheme has transferred sums or assets to secure the payment to the individual of a scheme pension or lifetime annuity.

They are used to prove that the scheme member is entitled to a lower reduction in their LSA and LSDBA than that provided for by the standard default calculation.

It should be noted that a ceritifcation administrator must issue a TTFAC if requested, so in theory an individual could become worse off with a TTFAC.

A TTFAC may benefit those whose actual tax free amounts of lump sums they became entitled to is lower than the standard transitional calculation.

Even though there may be lower tax free amounts on the TTFAC basis, it does not necessarily mean that there will be a benefit to a certificate.

If the aggregate of uncrystallised funds yet to be taken, including any future contributions or accrual, is not going to be high enough to utilise the additional allowance then it may not be necessary to apply for a TTFAC. Likewise, if there is no possibility of any Serious Ill Health Lump Sums or lump sum death benefits being paid then additional LSDBA would be irrelevant.

As originally enacted the age 75 BCE tests were included in the LTA previously used amount. Subsequent legislation introduced in November 2024 altered this.

Where a member has had an age 75 BCE test (which would not have produced tax free amounts) AND they did not take any further lump sum amounts between age 75 and 6th April 2024, the age 75 BCE can be ignored.

The individual will still go through the standard transitional calculation, and at the point they want to crystalise further benefits the scheme will contact the individual to ask if they have accessed further lump sums after age 75 and before 6th April 2024. If they haven’t, the standard calculation can be used disregarding any amount crystallised at age 75.

If the individual has taken further lump sums between turning 75 and 6th April 2024, the BCE used at age 75 is still taken into account, and the individual can apply for a TTFAC if appropriate/eligible.

Individuals, or their personal representatives, can apply for a Transitional Tax Free Amount Certificate.

Certification admnistrators have to either issue a certificate or refuse to issue one within three months of the application (application and complete evidence).

If a certification administrator believes a certificate to be incorrect they must notify the individual, or their personal representatives, that the certificate is cancelled.

HMRC confirmed in Pension Schemes Newsletter 165 that a certificate only needs to be cancelled where the available Lump Sum Allowance (LSA) or the Lump Sum Death Benefit Allowance (LSDBA) is incorrect.

If an application is refused, a certificate cancelled or found to be inaccurate then a new application can be made as long as the individual still meets the eligibility criteria (see below).

Where an individual fraudulently or negligently makes a false statement, or a pension scheme administrator assists in providing a statement they know to be inaccurate, a penalty of £3,000 can be issued.

A certificate:

• cannot be applied for if someone has Enhanced or Primary Protection and meets the lump sum condition (their tax free rights as at 5 April 2006 were above £375,000).

• must be applied for by the individual or the individuals personal representatives where they have died
  
  
• can be applied for from any scheme in which the individual is a member or insurance company where they have secured a lifetime annuity or scheme pension (or was immediately prior to death)
  
  
• must be requested along with complete evidence of previous amounts paid
  
  
• must be applied for AND ISSUED prior to the first Relevant Benefit Crystallisation Event after 5th April 2024

NB an individual with Enhanced Protection with no protected tax free cash, does not have their LSDBA assessed on transitional rules but may still benefit from a higher LSA.

When applying for a certificate complete evidence must be supplied, or an application will not have been deemed to have been made.

This would be evidence of the:

• lifetime allowance used

• amount of any tax free amounts paid

The evidence must allow the scheme administrator to determine the portion of the LTA used that was taken as tax-free lump sums. This by definition will be done on a case by case basis.

Some examples of appropriate evidence would be financial records, payment confirmations from schemes, BCE statements or bank statements.

There is no prescribed format for a certificate, it can be a standalone document or incorporated in any other document a scheme issues.

There is however prescribed information that must be issued. It must include the individual's:

• name, address and national insurance number

• lifetime allowance previously-used amount expressed as a percentage of the standard lifetime allowance

•  lump sum transitional tax free amount

•  lump sum and death benefit transitional tax free amount

Once a certificate is issued it cannot be amended or replaced.

It should be noted that the certificate shows th eamount of LSA and LSDBA used NOT the amount remaining.

Where an individual (or their personal representative) receives a certificate they have to provide a copy of the certificate to all other certification adminstrators of the member. This must be done within 90 days of the certificate being received.

This notification requirement came into effect from 18 November 2024. For members that had received a certificate before that date, they had 90 days from then (16 February 2025) to notify all their other certification administrators.

Lump sum transitional tax-free amount

This is the sum of the tax free amount paid of:

• Pension Commencement Lump Sums

• Uncrystallised Funds Pension Lump Sums (tax free amount)

• Standalone Lump Sum

In addition, where there was a pre 2006 pension in payment there is to be added 25% of the amount crystallised at the deemed BCE.

HMRC had initially indicated the addition would be the actual amount of tax free cash paid prior to April 2006 but in amending regulations on 14th March 2024 they adopted a different approach to what was previously indicated.

Lump sum and death benefit transitional tax-free amount

This is the amount of the lump sum transitional amount, plus the tax free amount of any:

• Serious Ill Health Lump Sum

• Defined Benefit Lump Sum Death Benefit

• Uncrystallised Fund Lump Sum Death Benefit

A certificate could cease to apply under two circumstances.

Firstly, and perhaps unlikely in practice, is where an individual identifies that a certificate is inaccurate.

Secondly, a certification administrator may cancel a certificate if it is found to be invalid or inaccurate.

Where the individual has not had a RBCE then they could reapply for a new certificate.

In either case above, the individual's allowances should be recalculated using the standard transitional calculation.

This may result in a tax liability if the tax free amounts paid since 5 April 2024 are higher than the individuals actual allowances. They should report this to HMRC to correct their tax affairs. It is worth noting that previous lump sums paid do not retrospectively become unauthorised payments.

Once cancelled a member (or their personal representative) has 90 days from receipt of the cancellation notice to notify all of their certification administrators.