How does LTA test at 75/work.

ffacoffipawb

Suppose at age 55 i have two sipps, both equal to 50% LTA and i crystallise them.

By age 75, one has doubled and one is worthless.


(1) the sipps are at two different companies. Is there an lta charge on the doubled one or can it be offset by the worthless one?

(2) if not, is the answer different if the crystallised sipps were merged with one provider before age 75?


Thank you

coyrls

I think at 75 they calculate the net gain across all crystallised pensions.  In your example the net gain would be 0 and therefore no tax due.

EdSwippet

https://www.retirement-planner.co.uk/231685/bernadette-lewis-drawdown-second-lifetime-allowance-test

If someone has more than one drawdown plan at age 75, each plan is tested separately. The charge is based on the total of any increases in drawdown values, ignoring any plans that have decreased in value. There is no opportunity to mitigate any charge by offsetting a ‘loss’ on one drawdown plan with a ‘gain’ on another.

DairyQueen

EdSwippet said:

https://www.retirement-planner.co.uk/231685/bernadette-lewis-drawdown-second-lifetime-allowance-test

If someone has more than one drawdown plan at age 75, each plan is tested separately. The charge is based on the total of any increases in drawdown values, ignoring any plans that have decreased in value. There is no opportunity to mitigate any charge by offsetting a ‘loss’ on one drawdown plan with a ‘gain’ on another.

That's a valuable piece of info - thanks.

coyrls

EdSwippet said:

https://www.retirement-planner.co.uk/231685/bernadette-lewis-drawdown-second-lifetime-allowance-test

If someone has more than one drawdown plan at age 75, each plan is tested separately. The charge is based on the total of any increases in drawdown values, ignoring any plans that have decreased in value. There is no opportunity to mitigate any charge by offsetting a ‘loss’ on one drawdown plan with a ‘gain’ on another.

Crikey, I was completely wrong!  How would they do the calculation if you consolidated pensions in drawdown after crystallisation but before 75?  Surely in that case with only one plan the offset effect would be achieved?

DairyQueen

coyrls said:

EdSwippet said:

https://www.retirement-planner.co.uk/231685/bernadette-lewis-drawdown-second-lifetime-allowance-test

If someone has more than one drawdown plan at age 75, each plan is tested separately. The charge is based on the total of any increases in drawdown values, ignoring any plans that have decreased in value. There is no opportunity to mitigate any charge by offsetting a ‘loss’ on one drawdown plan with a ‘gain’ on another.

Crikey, I was completely wrong!  How would they do the calculation if you consolidated pensions in drawdown after crystallisation but before 75?  Surely in that case with only one plan the offset effect would be achieved?

I'm also thinking about this. For example:

At crystallisation:
Sipp 1 = £100,000
Sipp 2 = £100,000

At age 75:
Sipp 1 = £150,000
Sipp 2 = £50,000

The loss on Sipp 2 would be disregarded so the £50,000 gain on Sipp 1 would be applied against unused LTA despite an equivalent loss on Sipp 2 cancelling out that gain.

If Sipp 2 (then valued at £50k) was transferred to Sipp 1 post-crystallisation and < age 75 then Sipp 1 would be worth £200k (£100k at crystallisation + £50k gain + £50k transfer from Sipp 2). At age 75 would the £100k 'increase' on Sipp 1 then be applied against unused LTA even though the (now transferred) Sipp 2 had already been applied against the LTA. If so, Sipp 2 would be double-counted against the LTA.

Or something else?

ffacoffipawb

DairyQueen said:

coyrls said:

EdSwippet said:

https://www.retirement-planner.co.uk/231685/bernadette-lewis-drawdown-second-lifetime-allowance-test

If someone has more than one drawdown plan at age 75, each plan is tested separately. The charge is based on the total of any increases in drawdown values, ignoring any plans that have decreased in value. There is no opportunity to mitigate any charge by offsetting a ‘loss’ on one drawdown plan with a ‘gain’ on another.

Crikey, I was completely wrong!  How would they do the calculation if you consolidated pensions in drawdown after crystallisation but before 75?  Surely in that case with only one plan the offset effect would be achieved?

I'm also thinking about this. For example:

At crystallisation:
Sipp 1 = £100,000
Sipp 2 = £100,000

At age 75:
Sipp 1 = £150,000
Sipp 2 = £50,000

The loss on Sipp 2 would be disregarded so the £50,000 gain on Sipp 1 would be applied against unused LTA despite an equivalent loss on Sipp 2 cancelling out that gain.

If Sipp 2 (then valued at £50k) was transferred to Sipp 1 post-crystallisation and < age 75 then Sipp 1 would be worth £200k (£100k at crystallisation + £50k gain + £50k transfer from Sipp 2). At age 75 would the £100k 'increase' on Sipp 1 then be applied against unused LTA even though the (now transferred) Sipp 2 had already been applied against the LTA. If so, Sipp 2 would be double-counted against the LTA.

Or something else?

If you combine the sipps before age 75 the problem goes away?

One for an expert like #dunstonh I think?

ffacoffipawb

EdSwippet said:

https://www.retirement-planner.co.uk/231685/bernadette-lewis-drawdown-second-lifetime-allowance-test

If someone has more than one drawdown plan at age 75, each plan is tested separately. The charge is based on the total of any increases in drawdown values, ignoring any plans that have decreased in value. There is no opportunity to mitigate any charge by offsetting a ‘loss’ on one drawdown plan with a ‘gain’ on another.

Thats not good. Combining pre 75 seems the solution if any is showing a loss, because you then only have one plan.

AJ Bell Youinvest only operates one account with a crystallised / crystallised split so all crystallised 100% in one account and only one plan to test.

EdSwippet

https://www.atebconsulting.co.uk/news/merging-flexi-access-drawdown-plans/

Verbally, HMRC have admitted to me that because of the requirement to be able to undertake the BCE 5A at age 75 (or the earlier BCE 4 if an annuity is secured from the drawdown funds) as if the two or more drawdown arrangements were still held separately, merging arrangements is likely to cause significant administration issues. HMRC can therefore see no reason a scheme administrator would seek to merge funds.

coyrls

It looks to me that you can't merge crystallised pensions:

Unlike the transfer of scheme pensions and annuities there is no requirement that a transferred drawdown fund must be used to provide drawdown pension under the new scheme. This is because a drawdown pension can be converted to either an annuity or scheme pension after funds have been designated into drawdown. However the sums and assets representing the transferred drawdown fund must become held under a new arrangement that holds no other sums or assets. If this is not the case the transfer will not be a recognised transfer.

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm104000

Albermarle

In this case , it would seem that if it is a possibility you will have LTA issues at age 75 then better to merge all into into one pension before crystallisation, Then big gains on some investments could maybe be offset  by poor performance of others ?