GMP and exceeding LTA

marlot

Marcon wrote: »

The requirement is for the scheme to pay the GMP at GMP age. That doesn't mean the scheme member must receive the full GMP - for example, if their state pension is in payment (and of course is paid gross) and they have a substantial GMP in payment with no excess over GMP, their whole pension income (state and private) will be taxed by deduction from the GMP.

That's fine for an ongoing tax bill, but the LTA charge in my case will be about five times the annual pension from this scheme (before commutation to pay the bill). And its due immediately - not over a number of years. Its a joint liability on the scheme and on the taxpayer, I believe.

(LTA charge being 25% of 20 x the annual pension = 5 times the annual pension).

Checking the scheme rules, they say that I can commute annual pension for cash as long as I don't go below the GMP.

I'm just hoping that it works out! It would be galling to have to pay it from taxed income instead.

luckyfool151

marlot wrote: »

That's fine for an ongoing tax bill, but the LTA charge in my case will be about five times the annual pension from this scheme (before commutation to pay the bill). And its due immediately - not over a number of years. Its a joint liability on the scheme and on the taxpayer, I believe.

(LTA charge being 25% of 20 x the annual pension = 5 times the annual pension).

Checking the scheme rules, they say that I can commute annual pension for cash as long as I don't go below the GMP.

I'm just hoping that it works out! It would be galling to have to pay it from taxed income instead.

[FONT=&quot]You seem to have a pretty good grasp of this. The charge is jointly and severally (Section 217)

http://www.legislation.gov.uk/ukpga/2004/12/part/4

Again you are right on the calculation. This seems to be a BCE 2. Total pension payable before any reduction by commutation x 20 is the capital sum attributed for the chargeable amount before the LTA charge of 25% is applied .

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm088620

The section that seems most relevant to your query on BCE 2 from the PTM is copied below.

“Where a chargeable amount arises

Paragraph 9(2) and (3) Schedule 32 Finance Act 2004[/FONT]
[FONT=&quot]https://www.legislation.gov.uk/ukpga/2004/12/schedule/32/crossheading/benefit-crystallisation-event-2-meaning-of-p[/FONT]

[FONT=&quot]Paragraph 43 Schedule 10 Finance Act 2005[/FONT]
[FONT=&quot]https://www.legislation.gov.uk/ukpga/2005/7/schedule/10[/FONT]

[FONT=&quot] Where a chargeable amount arises, any reduction to the level of scheme pension entitlement made by the scheme administrator to reflect the lifetime allowance charge paid by them is ignored when calculating the amount crystallising through BCE 2 when calculating ‘P’.

However, where either no such reduction is made under the scheme, or the reduction made does not reasonably reflect the tax charge paid by the scheme administrator, based on normal actuarial practice, the tax charge paid by the scheme administrator is called a scheme-funded tax payment and is added to the chargeable amount arising.”


Section 215 "Amount of charge" in the FA 2004 states the following:
[/FONT]
[FONT=&quot]"...(9)An amount of tax payable under this section is “covered by a scheme-funded tax payment” if—

(a)the tax is paid by the scheme administrator, and

(b)the individual’s rights under the pension scheme are not reduced so as fully to reflect the amount of the payment of tax.

(10)Whether the individual’s rights under the pension scheme are reduced so as fully to reflect the amount of the payment of tax is to be determined in accordance with normal actuarial practice..."

To me, it still seems imperative that you need to clarify with the scheme administrators how the charge would work in your situation. It does seem quite clear to me that this is not funded from personal income though.[/FONT]