Crystallise or not if already crystallised LTA

EdSwippet

garmeg said:

I am aware of this issue. If you do multiple flexible crystallisations with the same provider how do they keep all crystallisations separate when they are all in one account?

e.g. I have crystallised my small SIPP twice with the same provider. I have only one drawdown account with them so how do they do the age 75 test when the two transactions should be kept separate (ie two pots really)?

AIUI, when you first crystallise a chunk of a DC pension, you create a new associated 'drawdown arrangement'. You can crystallise other chunks of that same pension into its associated and existing 'drawdown arrangement' without any need for the provider to separately track the future of each chunk.

However, if you do this with two (or more) separate DC pensions you have created two (or more) separate 'drawdown arrangements'. And it is these that HMRC then insist have to be handled separately for LTA purposes. Hence issues trying to combine them into one.

At least, that's my understanding.

garmeg

EdSwippet said:

garmeg said:

I am aware of this issue. If you do multiple flexible crystallisations with the same provider how do they keep all crystallisations separate when they are all in one account?

e.g. I have crystallised my small SIPP twice with the same provider. I have only one drawdown account with them so how do they do the age 75 test when the two transactions should be kept separate (ie two pots really)?

AIUI, when you first crystallise a chunk of a DC pension, you create a new associated 'drawdown arrangement'. You can crystallise other chunks of that same pension into its associated and existing 'drawdown arrangement' without any need for the provider to separately track the future of each chunk.

However, if you do this with two (or more) separate DC pensions you have created two (or more) separate 'drawdown arrangements'. And it is these that HMRC then insist have to be handled separately for LTA purposes. Hence issues trying to combine them into one.

Great, that makes sense. Your explanation, that is, not the actual legislation!

I will keep both SIPPs separate with the two providers. No biggie really.

It is possible to transfer crystallised funds (in their entirety only) but I have no idea how a provider can keep them (at least notionally) separate in the same drawdown account. 

EdSwippet

garmeg said:

It is possible to transfer crystallised funds (in their entirety only) but I have no idea how a provider can keep them (at least notionally) separate in the same drawdown account. 

Me neither, but arguably it's the provider's problem to sort out at some point, not yours. Of course, when they do come to sort it out a decade or two hence, it might not be in the way you want.

As it stands, it's possible to make a net real loss across multiple DC pensions between crystallising and age 75 and yet still face a 25% LTA gain tax penalty if gains and losses occur in different pensions. Avoid by keeping the same asset allocation in both pensions, so that they track each other, and gains and losses automatically net out.

garmeg

EdSwippet said:

garmeg said:

It is possible to transfer crystallised funds (in their entirety only) but I have no idea how a provider can keep them (at least notionally) separate in the same drawdown account. 

Me neither, but arguably it's the provider's problem to sort out at some point, not yours. Of course, when they do come to sort it out a decade or two hence, it might not be in the way you want.

As it stands, it's possible to make a net real loss across multiple DC pensions between crystallising and age 75 and yet still face a 25% LTA gain tax penalty if gains and losses occur in different pensions. Avoid by keeping the same asset allocation in both pensions, so that they track each other, and gains and losses automatically net out.

Or balance the income withdrawals to keep / target both arrangements under their start amounts at 75.

cfw1994

garmeg said:

caveman8006 said:

https://forums.moneysavingexpert.com/discussion/6079468/testing-growth-in-multiple-drawdown-accounts-at-second-lta-test-at-75#latest
See above thread for more on this issue: bottom line, I think there is no advantage in combining multiple drawdown accounts to benefit from "netting" of investment growth at Age 75 BCE as the revenue insists on all pots being measured separately against individual starting values (even when brought together with same administrator) 

I am aware of this issue. If you do multiple flexible crystallisations with the same provider how do they keep all crystallisations separate when they are all in one account?

e.g. I have crystallised my small SIPP twice with the same provider. I have only one drawdown account with them so how do they do the age 75 test when the two transactions should be kept separate (ie two pots really)?

But that is with the same provider.   I've done 3 of these....I see one single drawdown (crystallised) sum left, and new monies are in the same funds (that is how Aviva works for my work scheme), but show as uncrystallised.
IF I tried moving a crystallised sum from another provider in.....maybe they will create a separate drawdown account for it.

garmeg

cfw1994 said:

garmeg said:

caveman8006 said:

https://forums.moneysavingexpert.com/discussion/6079468/testing-growth-in-multiple-drawdown-accounts-at-second-lta-test-at-75#latest
See above thread for more on this issue: bottom line, I think there is no advantage in combining multiple drawdown accounts to benefit from "netting" of investment growth at Age 75 BCE as the revenue insists on all pots being measured separately against individual starting values (even when brought together with same administrator) 

I am aware of this issue. If you do multiple flexible crystallisations with the same provider how do they keep all crystallisations separate when they are all in one account?

e.g. I have crystallised my small SIPP twice with the same provider. I have only one drawdown account with them so how do they do the age 75 test when the two transactions should be kept separate (ie two pots really)?

But that is with the same provider.   I've done 3 of these....I see one single drawdown (crystallised) sum left, and new monies are in the same funds (that is how Aviva works for my work scheme), but show as uncrystallised.
IF I tried moving a crystallised sum from another provider in.....maybe they will create a separate drawdown account for it.

AJ Bell only have one account for both crystallised and uncrystallised funds combined. They have a behind the scenes percentage split that you cannot see without asking them.

Dividends probably don't change the split but any contributions would increase the uncrystallised proportion of the total and any income taken would reduce the crystallised proportion.

Any further crystallisations would decrease the uncrystallised proportion of the total and increase the crystallised proportion.

Nightmare!

jamesd

EdSwippet said:

jamesd said:

An option is to wait for a big market drop then do it. You'll pay the charge on the reduced amount.

Useful if you still have uncrystallised funds and LTA headroom, since this can reduce or even eliminate the LTA penalty. However, I cannot see how it helps you once you have already crystallised up to the full LTA.

For example, suppose you have £200 uncrystallised and 0% LTA remaining. If you crystallise now, you get £150 into drawdown and pay £50 LTA penalty. Or, suppose stocks drop 50% and then recover completely. If you crystallise right at the bottom, you get £75 into drawdown and pay £25 LTA penalty on crystallising, but on recovery your £75 grows to £150, the exact same as if you had crystallised before the drop, or if it had not occurred at all.

Thanks. Cuts the LTA Charge but as you illustrate the net is the same. Withdrawing and paying less income tax may help. I need to adjust what I write.

jamesd

garmeg said:

Of course you could manage the withdrawals from each pot to reduce the LTA75 charge of both to zero"

You can also try moving money from the up pot by buying a doubly leveraged short ETF in that and the corresponding long in the other. But markets could move in the undesired direction. Leveraged funds don't track well in volatile markets and it gets worse with more than double, so it's not perfectly efficient.

garmeg

jamesd said:

garmeg said:

Of course you could manage the withdrawals from each pot to reduce the LTA75 charge of both to zero"

You can also try moving money from the up pot by buying a doubly leveraged short ETF in that and the corresponding long in the other. But markets could move in the undesired direction. Leveraged funds don't track well in volatile markets and it gets worse with more than double, so it's not perfectly efficient.

That is far too complex for minimal gain.

My uncrystallised funds are about 20% LTA so its not exactly a big problem. If I can minimise LTA75 charges fine, if I cannot, well c'est la vie!

But no point crystallising these until I have to - at age 75!

Especially if there is a remote chance LTA may go.

ukdw

jamesd said:

garmeg said:

Of course you could manage the withdrawals from each pot to reduce the LTA75 charge of both to zero"

You can also try moving money from the up pot by buying a doubly leveraged short ETF in that and the corresponding long in the other. But markets could move in the undesired direction. Leveraged funds don't track well in volatile markets and it gets worse with more than double, so it's not perfectly efficient.

Would be interesting to follow up these sort of ideas - to see if there are any tax planning advantages in having different asset allocations in the three different types of pot too.

i.e. a). ISAs with no tax due,  b) Crystalised pots with an average of 15% tax due (assuming 0% on 12.5k and 20% on 37.5k), and c) above LTA uncrystalised pots with 40% (20% on top of 25%) or 55% (40% on top of 25%) tax due.  

Is it best to have a bigger percentage of more volatile and hopefully eventually higher growth assets in the pots with less tax due, or is it best to have the higher taxed pots more volatile due to their mostly longer investment horizons?