How does LTA test at 75/work.

coyrls

Albermarle said:

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 ?

That's what it looks like to me.  Although if you're aware of the issue you could take drawdown from the pension that was showing the largest growth and not skew your investments across the pensions so that growth/loss would be in line across each one.

caveman8006

For what its worth, I had differing responses from my 2 SIPP managers as to their approach to assessing any additional LTA tax liability due to investment growth if a second crystallised drawdown pot is transferred from another manager and then merged with an existing cystallised pot:

Investacc said: " As your scheme with us is in full drawdown, we are obliged to keep any additional transfers received in a separate pot within your scheme, therefore we would have two separate pots and use the two original BCE1 values separately when checking for any LTA liability at age 75"

In contrast, AJ Bell said "Over all we look at how much was designated to each tranche at each BCE, add these initial amounts up and subtract them from the total value of their respective drawdown values as at your 75th birthday."

So, on the face of it, it would be much more efficient to transfer pots to AJ Bell if you are in danger of approaching the LTA through investment growth at 75, although I suspect the approach indicated by Investacc is more in line with the (somewhat ambiguous) official guidance.

This is what the HMRC's Pension Scheme Helpdesk responded when asked the same question:

"Thank you for your email

 The PTM refers to arrangements in PTM088650 - https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm088650 and this strongly signifies that the BCE is for each separate arrangement. The PTM certainly does not refer to amalgamating arrangements. If this was permissible, it would usually say so.

There are reasons why arrangements should be regarded separately, for instance, they are separate arrangements and therefore, one presumes there are specific differences in how they are organised and how they operate, this means that it may be incorrect to consider them as a single entity as it is not comparing like with like.

 You appear to be querying the interpretation of the guidance so I would suggest the non-statutory clearance route. As explained in my previous email, we do not give rulings so if you are looking for a more defined interpretation of the rules, this (the non-statutory clearance route) would be appropriate.

 Guidance on "Non-statutory clearances" can be found here - https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm011300#IDAGP4K

 Guidance on HMRC's role can be found here: - https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm011300#IDA0M4K"

 

 

 

cfw1994

coyrls said:

Albermarle said:

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 ?

That's what it looks like to me.  Although if you're aware of the issue you could take drawdown from the pension that was showing the largest growth and not skew your investments across the pensions so that growth/loss would be in line across each one.

That was my thinking.....draw down the growth from the higher performing one between 55-75 where feasible and appropriate.
& if you otherwise trip over that LTA number with those pieces......well, it feels like a first world problem to have, perhaps.

ffacoffipawb

cfw1994 said:

coyrls said:

Albermarle said:

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 ?

That's what it looks like to me.  Although if you're aware of the issue you could take drawdown from the pension that was showing the largest growth and not skew your investments across the pensions so that growth/loss would be in line across each one.

That was my thinking.....draw down the growth from the higher performing one between 55-75 where feasible and appropriate.
& if you otherwise trip over that LTA number with those pieces......well, it feels like a first world problem to have, perhaps.

More of a mathematical curiosity really. Thanks all.

Such scenarios could arise, but unlikely to be as extreme as the example given.