PCLS and Lifetime Allowance

JohnTbye

Does only the 25% PCLS count towards the LTA or it is ruled that you have crystallised the other 75% as well. So if you take £26,827 as PCLS (2.5% of £1.0731M) does that count as 2.5% of LTA or 10% of LTA.

garmeg

JohnTbye said:

Does only the 25% PCLS count towards the LTA or it is ruled that you have crystallised the other 75% as well. So if you take £26,827 as PCLS (2.5% of £1.0731M) does that count as 2.5% of LTA or 10% of LTA.

The latter - 10%.

jamesd

You only get to take 25% of what is crystallised. There's no way to take just the tax free part and not crystallise the remaining 75%.

To take £26,827 as PCLS you must crystallise four times that, £107,308. That's 10% of the lifetime allowance.

The small pot rule doesn't count and its 25% tax free in't a PCLS and is still available even if the lifetime allowance has been reached.

JohnTbye

The small pot rule doesn't count and its 25% tax free in't a PCLS and is still available even if the lifetime allowance has been reached.

Can you explain the 25% point you are making please

gm0

The reply is a specific point about small pot rule which are handled differently - up to 3 if my recall is correct.  An allowance originally designed to allow tiny scattered pensions to be handled sensibly rather than annuitised but now a tax efficiency exploit for some to arrange a small tax advantage on (usually) around 3x 10k.  View it as separate. It does not change the core handling

From Dr Google (which matches my understanding)

Small pots do not use, or require the customer to have any available, lifetime allowance (LTA). ... Small pots do not trigger the money purchase annual allowance (MPAA). An UFPLS payment of any amount does trigger the MPAA. 

As does taking PCLS and any income beyond 0 from the 3x crystallised portion.

Small pots depend upon what kind and how many occupational and personal pensions you have.  What is legally possible and what is sensible and practical to bother with may be different.  But many people happily squeeze out 3x 10k of "extra" allowance by this route.

Another thing to consider is if your investment growth projections approach LTA/1m by 75 remaining invested then you should also read and understand the crystallisation event rules - (BCE) particularly the age 75 LTA tests and the penalty taxes associated.  These can be planned for but require action (taking income) during the years 55 - 75

jamesd

The small pot rule always pays 25% tax free for uncrystallised pots. There is otherwise no tax free lump sum for amounts above the lifetime allowance. The small pot rule uses no lifetime allowance. Which means you can get an extra £7,500 in three small pot tax free amounts and have no lifetime allowance charge on that or the total £22,500 taxable.