Last Updated: 22 Nov 24 10 min read
1. Transitional Tax Free Amount Certificate Matters
2. Scheme Specific Tax Free Cash Matters
3. Primary/Enhanced Protection Matters
TTFAC irrelevant if nowhere near LSDBA?
Arguably this is the case, our calculator demonstrates the fund value needed to make use of the LSA, and the LSDBA.
With the requirement to present TTFACs to all policies you are a member of how does this work with DB schemes in payment? Assume client has a DB scheme in payment, client applies for a TTFAC prior to taking lump sum from their SIPP. Do they need to inform the DB scheme?Top of Form
Yes, the rules state that the recipient must inform all schemes that they are a member of.
Client issued with TTFAC May 1st. oh dear! had 90 days to inform other schemes so £300 fine??!!!
Yes this would be the case and this was fed back. We hope that further guidance to be issued on the 28th of November will clarify the position on this.
How are we supposed to inform all pensions of a TTFAC when these were issued in July!!!
Short of time travel this isn’t possible. But we hope the guidance will have some form of carve out for this situations.
90 day notification to all schemes for TTFACs- does that include notifying a DB pension in payment - eg SPPA/NHS already running? or just uncrystallised pots?
It’s all schemes that they are a member of, so the would have to inform SPPA/NHS of this.
TTFAC - for those who have taken bens via DB scheme, simply multiply their DB income by 20 to determine how much they have taken?
You have to provide complete evidence of LTA usage and actual tax free amounts taken with the application, you can’t just calculate this. But for working out if a TTFAC this would work, although you would also have to include the actual PCLS taken (if any) in the calculations.
My understanding is that the 90 day TTFAC notification is from TTFAC issue or 90 days from 18th November, if later.
That’s not what is stated in legislation.
AJ Bell understand that the 90 registration rule for TTFCC starts from Monday 18th November, when this was announced. Why do you think it's retrospective to 6th April ?
As stated above, it’s not in the legislation, we are hoping the guidance will provide details of something like this.
Is there a time frame for providers to confirm accuracy of TTAFC to avoid the risk of (un)authorised TFC payment which becomes subject to income tax
No, schemes will only cancel as and when they become aware of an issue.
Does the TTFAC notification have to be made to annuity providers / DB schemes in payment? Or just to pension providers where further benefits can still be taken?
It has to be made to them all.
Does the notification requirements apply to DB schemes as well.
Yes.
Transitional arrangement certificate issued for a member who transferred to a QROPS (BCE8 reduces available LSA). If the TTFAC is wrong and PCLS has been paid from the QROPS the excess is treated as unauthorized because excess lump sum cannot be relevant transfer funds ring fenced transfer funds.
The TTFAC is applicable to UK benefits only, it alters the LSA/LSDBA from the standard defaults.
Thanks both! Can you cover off the 90 deadline with an example of clients who are affected and what they need to do.
They simply have to provide all schemes of the TTFAC within 90 days of it being issued.
Having difficulty obtaining confirmation of zero tax free cash from eg GARs taken for TTFAC. Docs clearly state only annuity paid but are silent on TFC as there was none - clearly shows LTA used and matches pension fund value. Is this down to interpretation of 'full evidence?'
That appears to be the case as from what you have described this would appear to be full evidence to us.
How are clients who have already secured a TTFAC affected by the notification requirements, if they have already used the TTFAC to take additional PCLS?
It won’t affect their PCLS, it may end up with them having a £300 penalty if they haven’t notified all the schemes they are a member off within the 90 day limit.
If somebody had enhanced TFC and took this pre April 2024. Are we still just calculating the impact in the usual way ie default basis vs old LTA or TTFAC?
Yes.
If a client over 75 applied for TTFAC as the age 75 test limited LSA - does this continue exactly the same or could it be cancelled?
In may be cancelled if this means that the LTA used percentage is wrong. We are awaiting the guidance to clarify this position.
From now on Les I am going to refer to TTFAC as you pronounce it! genius ;)
You’re welcome.
Hi, can I confirm it's correct that a valid TTFAC shows the amount used, NOT the amount remaining? Have seen some issued with the amount remaining.
The legislation is clear that the TTFAC should detail the amount used.
As a general rule when should we consider applying for a TTFAC for a client?
When it’s beneficial for them to do so. There is no overriding rule, but as an example an over 75 with fully crystallised funds that were LTA tested would be ultimately a pointless application.
How would a client be impacted when they took TFC with no protection from a DB scheme in 2017 when LTA was £1,000,000 and still has a million in DC uncrystallised.
If they had not taken any more than 25% of the total pot as PLS then they would get higher LSA/LSDBA by applying. Put the numbers into the calculator and you’ll see.
If you have a TTFAC, do you need to inform schemes that are just paying you a scheme pension (e.g. NHS pensions in payment)?
Yes.
Any idea where I can get a functional time turner necklace for the TTFAC notices?
Hogwarts School of Witchcraft and Wizardry, if you get to platform 9¾ at Kings Cross you can get there direct.
Where do I start with clients who have uncrystallised personal pension, who have DB pension in payment that were taken a number of years ago. How do I check the value of the DB benefits taken, so that when they want to access their personal pension, they aren't breaching the tax free lump sum max?
Schemes will require to know that there are sufficient allowances available to pay any tax free amounts. The DB scheme itself would seem to be a good starting point.
Make sure the DB state the amount of TFC taken even if zero as most providers won’t just accept a % LTA used
This may be down to interpretation of full evidence as stated earlier.
Most other providers are asking for statements from providers to say that no TFC was taken even when LTA % marries with the pot size or 20x the income.Top of Form
Seems a bit belt and braces to us.
So someone who had a 75 BCE on uncrystallised funds they no longer need to apply for a TTFAC and that usage can just be ignored under the default calculation?
Sorry, there is not enough info on this. If the client took PCLS post 75 under the LTA they may need to. Also if they too other benefits there may be an impact with LSA/LSDBA.
I have a client who has not taken any post A-Day benefits and is only receiving a per A-Day DB. The uncrystallised funds and DB at age 75 used all her LTA - DB will have been notionally tested (x 25 annual benefits). How does this effect the ILSA and under the new rules (Monday) will she need TTFAC?
It will affect the LSA and LSDBA, and given the pension in payment used the LTA I’d expect there to be no LSA left either way. Pre-commencement pensions have an automatic deemed PCLS value given to them and this isn’t an age 75 test that can be ignored. Our calculator can confirm this calculator.
The calculator may show a higher LSDBA, but for an over 75 there is no point in obtaining a TTFAC for this purpose as death benefits are not tested against the LSDBA for over 75’s.
I had to get LV to reissue TTFAC twice as they got it wrong the first two times ...
Hopefully, it’s third time lucky.
Where an individual has no individual protections, is Scheme Specific Tax Free Cash capped?
It’s not limited by their available LDSA (although it will use up 25% of the total value crystallised from the LSA). They can take the scheme specific up to their available LSDBA free of tax, anything above that will be taxable at marginal rates.
For a client with no protection in place but Scheme Specific TFC > 25% is it now OK to pay out without risk of unauthorised payment?
It is indeed.
If someone has scheme specific lump sum of say £100k, but has fully used his LTA in % terms, but still has £10k LSA left under TTFAC, will he be able to still get the £100k (ie because he still has at least £1 of LSA left as per your webinar earlier in the year)?
Things changed on the 18th of November from that earlier webinar. The client doesn’t need available LSA to pay scheme specific now. As long as the payment is below their available LSDBA it will all be free of tax, anything above the available LSDBA is taxed at their marginal rate.
Where can we find the new formula for calculating SSTFC? Should we expect providers to be positioned to use it from now?
It’s at the bottom of page 5 here. Yes, this is effective from the 18th of November 2024, so for most this can proceed. If your clients have Primary or Enhanced Protection with did not have lump sum rights above £375,000 as at the 5th of April 2006, other LTA enhancement factors or a disqualifying pension credit in the scheme then there are still issues that need to be resolved.
If someone has Protected TFC of 35% and is within a S32 bond valued at £461K. Client also has a SIPP valued at £1.13m. To take the max TFC available, should we take as much TFC (£268,249) and then take the 35% to do this?
Not sure where the £268,249 value has come from. Based on the fund value the client can take £268,275 PCLS from the non-protected scheme. This would use up all of their available LSA but they would have £804,825 of LSDBA left. That’s more than enough to pay SSPTFC based on these values.
Does this mean that previous transitional protection will now be taken into account when calculating scheme specific tax free cash?
Previous LTA protection will affect the tax free amounts. Basically the higher the protection the lesser the protected tax free cash will be.
Will a scheme specific TFC provider have to check how much LSDBA you have left?
Yes.
For SSPTFC calculations is it better to have a higher value of the pot at A-Day or a lower value?
It’s arguably nothing to worry about, as you can’t change the past. Or if you can it may help out on all the issues with the TTFAC notifications now being late.
Have a client who has protected TFC through one of his pensions & his total LSA is above £1.07m. Looks like he couldn't take TFC from this pension 1st as this could affect total amount of TFC he could take based on your earlier slide? looking to pay out the protected TFC & transfer crystallised pot. Sorry, obviously meant his total LSA is above £268,275 (including protected TFC), not £1.07m (following on from previous question).
Without the figures it’s difficult to be exact. But have a look at the slides and this will show you the methodology to use.
I have a client with Enhanced Protection 25% Tax Free lump sum with an uncrystallised fund of £2.2M. Is the client safe to continue to take phased tax free cash amounts?
It is indeed.
I have a client who has enhanced protection. He has used 175% of LTA but has protected tax free cash of 14%. Uncrystallised funds of £371K so £52K tax free cash was available. He is 81 years old. Is his tax free lump sum entitlement still available please?
His LSA will be based on what he could have taken tax free on 5/4/23, so this appears to be ok.
Is the enhanced protection percentage per scheme? i.e. if the client has previously crystallised benefits and taken PCLS, does this count towards the available percentage remaining or would they still be able to take the full percentage available on any uncrystallised pots?
The percentage applies to each BCE (under the LTA regime) and each RBCE until the member is out of LSA/LSDBA.
Is someone with Enhanced and Primary Protection now restricted to LSDBA of £1,073,100 ?
No. For primary protection people their LSDBA is £1.8m times their primary protection factor and add 1.8m to that figure (of just cheat ad times 1.8m by 1 plus their factor). For enhanced their LSDBA is the total value of uncrystallised funds as of 5 April 2024.
Q. My client crystallised benefits of £1m when the Standard LTA was £1m. Now that the Standard LTA increases by CPI can they crystallise further benefits without incurring a LTA excess?
A. If your client crystallised £1m of benefits when the Standard LTA was £1m this will have used up 100% of their LTA. Therefore, as they have no LTA remaining they will not benefit from the CPI increase and any further benefits they crystallise will be subject to a LTA excess tax charge.
Benefits of QNUPS and QROPS now irrelevant?
Numerically for those remaining in the UK it will be worse for clients, but there may be individual advice considerations that may make this viable dependant on circumstances. But the numerical disadvantage would need to be covered off and discounted. Additionally if a client is actually moving to another country, this could still be viable.
Have there been any changes impacting clients who have moved back to UK and now want to transfer their e.g. Gibraltar QROPS back to a UK scheme??
There will be no impact on the allowances for money being transferred in. If there are uncrystallised funds then taking anything tax free from these will use up LSA and LSDBA. If death benefits are paid as a lump sum they will be LSDBA tested. In the past a transfer in of the equivalent of drawdown was tested against the LTA, but there is no test on the new allowances for this.
What happens where client has £1m pension in UK plus $500,000 in US? Should he bring dollar fund to UK? (Would Pru RA accept it?) Client has not drawn any benefits and is age 64.
This is more an advice matter, firstly we don’t know the tax position of taking the benefits from the US scheme. Therefore, border advice should be sought. We don’t know if the scheme would transfer this pension to the UK. All we can say is that transferring that amount to the UK would likely then mean that the clients benefits are over the LSDBA, and you no longer get credit factors for transferring in an overseas pension to the UK.
Expressions of Wishes now irrelevant under new regime?
Not at all. The only changes proposed are to IHT treatment of the schemes. All other considerations after this are to remain unchanged. This includes all distribution rules and legislation.
As an example, If the scheme selects a child above the age of 23 and that child had not been nominated by the member then this would have to be paid as a lump sum. That may have tax consequences if that payment is above the available LSDBA if the member dies under the age of 75. It will have income tax consequences if the member died after turning age 75.
Since pension freedoms we have been very vocal about checking how a scheme can distribute to beneficiaries, as well as making nominations that then give the scheme the greatest flexibility. This was irrespective if IHT applied to the pension. This will continue to be the case.
Sorry Mark, Les, beg to differ of validity of EoW after 2027:
Based on the above answer I guess we’ll just have to agree to disagree.
Does the LSDBA fall away when IHT hits pensions from April 2027?
Going by the announcement no, all other tax issues with pensions are planned to remain unchanged.
Pension fund into the estate affects RNRB?
As things stand his will be the case.
Business owner/directors Post budget: strip out pension and build up capital into company to benefit from BR?
We simply don’t know enough about how the IHT regime may impact this. Planning based on this now may have unintended consequences. Bear in mind the IHT impact of pensions is not due to change until the 6th of April 2027.
Does death in service life cover affect LSDBA?
If it comes from a pension scheme, it will. Top of Form
Is taking benefits from a DB scheme a RBCE?
If taken purely as a scheme pension it isn’t. If you take any PCLS that is a RBCE.Top of Form
Client turned 75 & used say 50% LTA testing the unused funds, he took subsequent TFC after 75 as at the time this BCE was ignored for TFC remaining, since 6th April 24 this BCE was then retrospectively counted, he has no LTA left. Can we ignore 75 BCE regardless of subsequent withdraws?
I'm not sure i have understood this correctly but if pension crystallised prior to 2024 do not form part of the LSDBA on death are providers now going to have to segment crystallised pots between pre and post 2024?
If a client (spouse) has inherited a Personal Pension and the partner was under the age of 75 when they inherited the pension (so the whole pot inherited is free of tax), how does this effect the LSA and the LS&DBA if it does at all?
If this has been tested against the LTA the will never affect the LSA/LSDBA. If not tested then on the members death it will be tested against their LSDBA if paid as a lump sum.
If this is paid in the form of income that’s not a lump sum so not tested.
If the beneficiary then takes this on as a beneficiaries drawdown that can be tested against their LSDBA if paid as a lump sum. This situation carries on down the generations.
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